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Lien In: Maximizing Recovery of Workers’ Compensation Liens through Arbitration

When an employee is injured on the job due to the negligence of a non-employer third-party, the employee has two claims: one against the employer based in workers’ compensation, the other as a personal injury claim against the third-party.  While they may have two claims, they are allowed only one recovery for their lost wages, medical bills, and other expenses. Noblin v. Randolph Corp., 180 Va. 345, 358-59 (1942).  Thus, when an employer pays an employee’s medical bills and lost wages under workers’ compensation, the employer then becomes entitled to collect that money paid to the employee from the proceeds of any personal injury action the employee might bring against the third-party.

Plaintiff’s attorneys hold seminars and write articles on how to “maximize recovery” in workers’ compensation and personal injury cases.  What is less often looked at is what employers can do to “maximize recovery” of its portion of the proceeds from an injured worker’s personal injury case.

Under Virginia Code § 65.2-309, an employer gets a lien against recovery from a negligent third-party when they pay out for injuries to their employee. There are essentially three ways an employer can enforce this lien.  The first is to allow the injured worker to obtain his own attorney and when settlement or judgment is paid by the third-party, the employer can collect the amount they paid the employee (minus their pro rata portion of attorney’s fees and costs).  Virginia Code § 65.2-310. If the employee or their attorney refuses to pay the lien, the employer can sue them to recover the amount owed on the lien and will avoid paying its pro rata share of attorney’s fees and costs. Virginia Code § 65.2-311(b).

The second way for an employer to recover from its lien is to bring, in the name of the employee or the employer, an action to recover the full amount of the employee’s damages. Virginia Code § 65.2-309(a).  Any amount recovered above the lien would go to the injured worker, minus a proportionate payment to go to attorney’s fees and costs. Virginia Code § 65.2-309(b).  Any settlement in such a case would have to be approved by both the employee and the workers’ compensation commission. Virginia Code § 65.2-309(c).

So far, the options for an employer to maximize recovery are limited.  The first option is for the employer to wait for the employee to bring their own suit and the piggy-back on that.  Not only does recovery in this situation depend on the whims of whether the employee decides to bring a case, but employers could end up losing a third or more of their recovery to the employee’s attorney.  The second option for an employer to recover isn’t much better.  Though the employer has some control over whether and when an action can be brought, and over the amount of attorney’s fees, the employer cannot settle the case without approval of both the injured employee and the workers’ compensation commission.  This puts the employer in the untenable position of pursuing a case doggedly and then being stuck unable to settle the case.

A third option was opened up by the holding in Williams v. Capital Hospice, 66 Va. App. 161 (2016).  In Williams, the Plaintiff, Williams, was involved in an accident with a negligent third-party in October of 2011. Id. at 165.  Her employer paid out roughly $4000 as a workers’ compensation claim. Id.  In March of 2012 the employer entered into arbitration with the insurer of the negligent third-party. Id.  Williams asked for the arbitration to be delayed so she could settle her personal injury case. Id.  Against Williams’ wishes, the employer and insurance company for the third-party resolved the workers’ compensation lien in arbitration in August 2012 for $4000. Id.  In April of 2014, Williams settled her personal injury claim for $10,000. Id.  She then went to the workers’ compensation commission and claimed she was due another $1350 (i.e. 33% of $4000) arguing that the employer would have to pay its proportionate share of attorney’s fees even though it had settled its claim in arbitration. Id.

The Court first held that the arbitrated claim did not require approval of Williams or the Commission and that such approval was not required in “an action by an employer against the third-party solely to recover its lien.”  Id. at 167-68. (citing Virginia Code § 65.2-309(c)).  Perhaps even more importantly, the Court held the provision requiring the employer to proportionately pay Williams’s attorney’s fees did not apply. Id. at 168. (citing Virginia Code § 65.2-3010).

The Williams case opened up a new possibility for resolving an employer’s workers’ compensation liens through arbitration.  The Virginia legislature approved of this mechanism for resolving workers’ compensation liens when they amended the workers’ compensation statute in 2017, the year after Williams was decided. Virginia Code § 65.2-309(e) made clear some requirements that must be met before an employer can arbitrate its workers’ compensation lien claim.  First, as was the case in Williams, the arbitration must be limited solely to the amount of the lien.  Second, the arbitration cannot affect the employee’s right in any way.

The final procedural requirements for submitting a workers’ compensation lien to arbitration are more complicated than the first two.  Before arbitrating the lien the employer must provide the employee and their attorney with an itemization of expenses associated with the lien.  The employee then has 21 days to object to those expenses being included in the lien and any expense not objected to in that time is deemed admitted.  The employer then has 14 days to respond to any objections and, if the employer fails to respond, the expense is deemed withdrawn.  If any contested expenses remain, then it is left to the workers’ compensation commission to decide if the expenses will be allowed as part of the lien and the commission must make a decision before arbitration can commence.

It should be clear from what has been said so far that arbitration provides an efficient and cost-effective means for an employer to recover a workers’ compensation lien, but how can an employer get to arbitration?  Fortunately, many of the largest insurance companies have already agreed to arbitrate workers’ compensation liens with workers’ compensation carriers or self-insured employers through Arbitration Forums (https://home.arbfile.org/).  See Article First (Compulsory Provisions) of the Special Arbitration Agreement, subsection (c).  Companies including State Farm, Geico, Progressive, Allstate, USAA, Liberty Mutual, Farmers Insurance, Nationwide, and Travelers may have already agreed to arbitrate workers’ compensation lien claims with workers’ compensation carriers or self-insureds.

While the decision to arbitrate where possible is a no-brainer, the process can get complicated, often requiring back and forth with the employee’s attorney and possible appearances before the workers’ compensation commission.  If you have questions about this article, or about pursuing your own workers’ compensation lien, please contact Andrew Hanlin (ahanlin@setlifflaw.com) at 804-377-1277, or Steve Setliff (ssetliff@setlifflaw.com) at 804-377-1261.

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