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THIRD PARTY AND OTHER CLAIMS
Retaliation against employee for filing claim. "The employee may bring an action in a circuit court having jurisdiction over the employer or person who allegedly discharged the employee in violation of this section. The court shall have jurisdiction, for cause shown, to restrain violations and order appropriate relief, including actual damages and attorney's fees to successful claimants and the rehiring or reinstatement of the employee, with back pay plus interest at the judgment rate." Code Sec. 65.2-308 (B). The test in such cases seems to be whether the employer's decision to terminate an employee fell, at least in part, within the range or ambit of reasonable, legitimate and non-pretextual business judgment. Cooley v. Tyson Foods, Inc., Record No. 981313 (Va. Supreme Court, April 16, 1999). WP Version. Code Sec. 65.2-308 (A) states: "No employer or person shall discharge an employee solely because the employee intends to file or has filed a claim under this title or has testified or is about to testify in any proceeding under this title. The discharge of a person who has filed a fraudulent claim is not a violation of this section." The evidence of record reveals that Cooley, who had been employed by Tyson for 29 years, failed to prove by a preponderance of the evidence that Tyson Foods fired him solely because he intended to file a workers' compensation claim. The evidence of record clearly establishes that Tyson Foods, which had conducted a thorough investigation, was entitled to conclude, based upon the facts it adduced during that investigation, that Cooley had made a false representation to Tyson Foods that he had not been injured "recently or in the past . . . off the job." Thus, Tyson Foods had a legitimate non-pretextual reason to terminate Cooley which cannot subject Tyson Foods to liability under Code Sec. 65.2-308. This case is distinguishable from Charlton v. Craddock-Terry Shoe Corp., 235 Va. 485, 369 S.E.2d 175 (1988), in which the plaintiff stated that she was fired because she had refused to sign a waiver of her right to claim workers' compensation benefits. 235 Va. at 488, 369 S.E.2d at 177. The record in Charlton revealed that the defendant's motivation for terminating the plaintiff was a matter outside the realm of her knowledge and that the evidence when considered in its entirety supported the jury's finding that the plaintiff was discharged solely because she had intended to file a workers' compensation claim. 235 Va. at 490, 369 S.E.2d at 177-78. See also Mullins v. Virginia Lutheran Homes, 253 Va. 116, 119-20, 479 S.E.2d 530, 532-33 (1997). Cooley v. Tyson Foods, Inc., Record No. 981313 (Va. Supreme Court, April 16, 1999). WP Version.
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Employers Right of Subrogation. If employer has any right of subrogation, it must be expressed in the Code. See Noblin v. Randolph Corp., 180 Va. 345, 358, 23 S.E.2d 209, 214 (1942).
Code Sec. 65.2-309(A) provides that "[a] claim against an employer . . . shall operate as an assignment to the employer of any right to recover damages which the injured employee . . . may have against any other party . . . , and such employer shall be subrogated to any such right." In applying this statute, the court held that "the employee may not pursue his common law remedy in such a manner or settle his claim to the prejudice of the employer's subrogation right and thereafter continue to receive workers' compensation benefits." Wood v. Caudle-Hyatt, Inc., 18 Va. App. 391, 397, 444 S.E.2d 3, 7 (1994). Furthermore, the court stated the following: An employee necessarily prejudices his employer's subrogation rights and, thus, is barred from obtaining or continuing to receive benefits under a Workers' Compensation Award when an employee settles a third-party tort claim without notice, or without making a claim for workers' compensation benefits, or without obtaining the consent of the employer. Id. (citing Stone v. George W. Helme Co., 184 Va. 1051, 1060, 37 S.E.2d 70, 75 (1946).
This rule applies whether the third party tortfeasor causes the original compensable injury or a later aggravation of that injury. Barnes v. Wise Fashions, 16 Va. App. 108, 111, 428 S.E.2d 301, 302 (1993).
In the exercise of its right to pursue a third-party claim, the employee must not prejudice the employer's right of subrogation given by Code Sec. 65.2-309 and 65.2-812. The penalty for impairing the employer's right may be loss of the employee's right to compensation benefits. But, where impairment is claimed, to successfully be relieved of its liability to pay compensation benefits, the burden is upon the employer to show that the employee prejudiced the employer's right. In the absence of Code Secs. 65.2-309 and 65.2-812, the employer would have no common law right to be subrogated to any extent in the employee's claim against a third party. The employer's rights are limited to those given by the Virginia Workers' Compensation Act (Act). We have reviewed the Act and find no statute that authorizes the commission to terminate an employee's benefits when the omissions of his or her attorney in the course of a third-party action (that resulted in loss of the third party suit) resulted in the loss of an employer's subrogation rights. Mere proof of unauthorized acts or omissions on the part of an attorney relied upon by both the employee and the employer to protect their respective rights cannot be charged against either and will not support the employer's request to be relieved of paying further compensation benefits. Overhead Door Company of Norfolk v. Daniel Lee Lewis, Record No. 1524-95-1 (April 9, 1996).
It is well established that the employer/carrier can waive subrogation rights as part of a settlement. See Connell v. Aetna Life & Casualty, 436 A.2d 408, 410-11 (Me. 1981); Stephenson v. Martin, 259 N.W.2d 467, 470-71 (Minn. 1977); Welch v. Arthur A. Fogarty, Inc., 255 A.2d 627, 630-31 (Conn. 1969); 2A Arthur Larson, The Law of Workmen's Compensation, Sec. 74.31(e), at 14-517 (1983). There is also substantial authority to the effect that the waiver need not be express, but can be inferred from the language of the settlement agreement. 2A Larson, supra, Sec. 74.17(a), at 14-428; see also Stephenson, 259 N.W.2d at 470. However, accepting the commission's standard of a "clear and unequivocal" waiver, Vance International waived its subrogation rights when it settled the workers' compensation claim. David Michael Tomlin v. Vance International, Inc., Record No. 2475-95-2, 22 Va. App. 448, 470 S.E.2d 599 (1996).
Parol Evidence. Where a written instrument is clear and explicit and can be interpreted based on the ordinary meaning of the language used, the parties' intent is clear and cannot be altered through parol evidence. Nelson v. Commonwealth, 235 Va. 228, 246, 368 S.E.2d 239, 249 (1988); Amos v. Coffey, 228 Va. 88, 92, 320 S.E.2d 335, 337 (1984). Because the language of the settlement was clear, it was error for the commission to use parol evidence to interpret the parties' intent. For these reasons, the commission's decision is reversed. David Michael Tomlin v. Vance International, Inc., Record No. 2475-95-2, 22 Va. App. 448, 470 S.E.2d 599 (1996).
A claim for workers' compensation benefits operates as an assignment to the employer of any right to recover damages which the injured employee may have against any other party for such injury. See Code Sec. 65.2-309(A). "[T]he employee may not pursue his common law remedy in such a manner or settle his claim to the prejudice of the employer's subrogation right and thereafter continue to receive workers' compensation benefits." Wood v. Caudle-Hyatt, Inc., 18 Va. App. 391, 397, 444 S.E.2d 3, 7 (1994). The employee necessarily prejudices his employer's subrogation rights and, thus, is barred from obtaining or continuing to receive benefits under a workers' compensation award when an employee settles a third-party tort claim without notice, or without making a claim for workers' compensation benefits, or without obtaining the consent of the employer. Id. "This is especially true when an employee settles a third-party claim for less than the potential amount of workers' compensation coverage. In such situations, the employer's rights are significantly impaired." Id. at 398, 444 S.E.2d at 7.
An employer who knows of a third-party action and does not file a pleading to intervene is not estopped from seeking termination of the employee's workers' compensation benefits. See Ball v. C.D.W. Enterprises, Inc., 13 Va. App. 470, 474, 413 S.E.2d 66, 69 (1992). See also Safety-Kleen Corp. v. Van Hoy, 225 Va. 64, 71, 300 S.E.2d 750,754 (1983). The fact that an employer knows about a pending third-party claim is not the relevant inquiry. See Barnes v. Wise Fashions, 16 Va. App. 108, 111, 428 S.E.2d 301, 302 (1993). Rather, the issue is whether the employer had knowledge of the terms of the proposed third-party settlement prior to its completion, such that the employer had the opportunity to assert and protect its subrogation right.
Under the Workers' Compensation Act, the employer/insurer is subrogated to an employee's rights against a third party responsible for the injuries giving rise to the payment of compensation. Code Sec. 65.2-309(A). The purpose of the statute is to reimburse an employer who is compelled to pay compensation as a result of the negligence of a third party and to prevent an employee from obtaining a double recovery of funds. See Gartman v. Allied Towing Corp., 467 F. Supp. 439, 440 (E.D. Va. 1979). The employer's subrogation rights are triggered automatically when the injured employee files a claim against the employer and thereby assigns to the employer any claims against third parties. Code Sec. 65.2-309(A); Wood v. Caudle Hyatt, Inc., 18 Va. App. 391, 395-96, 444 S.E.2d 3, 6-7 (1994).
It is well established that the employer/carrier can waive subrogation rights as part of a settlement. See Connell v. Aetna Life & Casualty, 436 A.2d 408, 410-11 (Me. 1981); Stephenson v. Martin, 259 N.W.2d 467, 470-71 (Minn. 1977); Welch v. Arthur A. Fogarty, Inc., 255 A.2d 627, 630-31 (Conn. 1969); 2A Arthur Larson, The Law of Workmen's Compensation, Sec. 74.31(e), at 14-517(1983). There is also substantial authority to the effect that the waiver need not be express, but can be inferred from the language of the settlement agreement. 2A Larson, supra, Sec. 74.17(a), at 14-428; see also Stephenson, 259 N.W.2d at 470. However, accepting the commission's standard of a "clear and unequivocal" waiver, the court held that Vance International waived its subrogation rights when it settled the workers' compensation claim. The settlement provides that the parties are released from all claims, demands, and obligations in connection with claimant’s workers' compensation claim, and "any rights which might be alleged to arise under Virginia Code Section 65.2-100," the Workers' Compensation Act. Subrogation rights "arise" under the Workers' Compensation Act, and arose here "in connection with" claimant’s claim. This language clearly and unequivocally waives Vance International's subrogation rights. See Welch, 255 A.2d at 631 (court interpreted similar language as unambiguously waiving the employer's right to recoup compensation from settlement funds; court also noted that the settlement did not reserve the right to recoupment nor did the parties inform the commissioner who approved the settlement of any intent to reserve that right). Where a written instrument is clear and explicit and can be interpreted based on the ordinary meaning of the language used, the parties' intent is clear and cannot be altered through parol evidence. Nelson v. Commonwealth, 235 Va. 228, 246, 368 S.E.2d 239, 249 (1988); Amos v. Coffey, 228 Va. 88, 92, 320 S.E.2d 335,337 (1984). Because the language of the settlement was clear, it was error for the commission to use parol evidence to interpret the parties' intent. David Michael Tomlin v. Vance International, Inc., Record No. 2475-95-2, 22 Va. App. 448, 470 S.E.2d 599 (1996).
In Bohle v. Henrico County Sch. Bd., 246 Va. 30, 431 S.E.2d 36 (1993), the Court considered the method to be used for apportioning attorney's fees and expenses under the Act when payment of compensation benefits to an injured employee had been suspended following a settlement between the employee and a third-party tortfeasor. The Court adopted the approach used by the Commission, that is, "once the employee's net third-party recovery is determined, the employee will be entitled to payment of no further compensation or medical expenses subsequent to the date fixed in the suspension order until the employee can establish that further benefit entitlements exceed the net amount received by the employee from the third-party recovery." Id. at 35, 431 S.E.2d at 39. The Court said, however, that "the Commission has not foreclosed the payment of attorney's fees in increments as medical expenses and compensation benefits accrue during the suspension period." Id.
In 1994, the General Assembly adopted Code Sec. 65.2-313. Acts 1994, ch. 586. As pertinent, the statute provides: "In any action or claim for damages by an employee . . . against any person other than the employer under Sec. 65.2-310, . . . if a recovery is effected, the employer shall pay to the employee a percentage of each further entitlement as it is submitted equal to the ratio the total attorney's fees and costs bear to the total third-party recovery until such time as the accrued post-recovery entitlement equals that sum which is the difference between the gross recovery and the employer's compensation lien. In ordering payments under this section, the Commission shall take into account any apportionment made pursuant to Sec. 65.2-311. For the purposes of this section, 'entitlement' means compensation and expenses for medical, surgical and hospital attention and funeral expenses to which the claimant is entitled under the provisions of this title, which entitlements are related to the injury for which the third-party recovery was effected."
A circuit court's jurisdiction extends only to the point where it determines the amount of compensation benefits, as opposed to attorney's fees and costs, actually paid by the employer. Sec. 65.2-313 permits the circuit court to apportion attorney's fees and costs based on the amount of benefits paid in the past, and benefits to be paid in the future until, in the language of Sec. 65.2-313, "the accrued post-recovery entitlement equals that sum which is the difference between the gross recovery and the employer's compensation lien." The employer is liable for payment "of each further entitlement as it is submitted" based upon a percentage "equal to the ratio the total attorney's fees and costs bear to the total third-party recovery" until the time when "the accrued post-recovery entitlement equals that sum which is the difference between the gross recovery and the employer's compensation lien." When the circuit court has fixed that percentage and has determined the amount of the lien for payment of past benefits, the Commission enters the picture and orders the appropriate payments to be made, taking into account the apportionment percentage fixed by the court. See Eghbal v. Boston Coach Corp., 23 Va. App. 634, 638-39, 478 S.E.2d 732, 734-35 (1996) (summary of Commission's manner of calculation of offset due employer under Sec. 65.2-313). Thelma E. Hawkins v. Commonwealth of Virginia/ Southside Virginia Training Center, Record No. 971154 (Va. S.Ct., February 27, 1998). WP Version.
Claimant suffered a compensable injury in 1989. The commission awarded him temporary total disability benefits in1989 but suspended that award in 1991 because of his third-party recovery. In 1996, claimant applied for a new offset calculation based on Code Sec. 65.2-313, requiring offset calculations and proportionate payments of litigation expenses incurred in obtaining a third-party award which suspends, in whole or in part, an employer's workers' compensation obligations. Claimant is not entitled to this recalculation. If an application for review of a final order of the commission is not made within twenty days of the date of the order, the commission has no jurisdiction to review the matter unless the petitioning party alleges fraud or mistake in the procurement of the award. McCarthy Electric Company, Inc. v. Foster, 17 Va. App. 344, 345, 437 S.E.2d 246, 247 (1993) (citing Code Sec. 65.2-705(A)). Because claimant failed to meet this time requirement and has not alleged fraud or mistake, the commission correctly found that it lacked authority to modify the 1991 order. Claimant contends that the legislature intended that Code Sec. 65.2-313 be applied retroactively. This issue need not be addressed because even if the statute could be applied retroactively, it could not be used to modify the 1991 order because claimant failed to allege fraud or mistake. See Buenson Division, Aeronca, Inc. v. McCauley, 221 Va. 430, 434 n.2, 270 S.E.2d 734,736 n.2 (1980) (noting that a new statute with retroactive applicability cannot act to revive a "dead claim"); Dan River, Inc. v. Adkins, 3 Va. App. 320, 326, 349 S.E.2d 667, 670 (1986)(citing Buenson Division, 221 Va. at 434 n.2, 270 S.E.2d at 736n.2). James A. Robinson v. Trego Stone Corporation, Record No. 0861-97-2 (November 25, 1997).
Claimant sustained an compensable injury by accident due to the negligence of a third party. Claimant's attorney did not file a timely tort claim against the tortfeasor. Claimant then sued his attorney alleging malpractice. In this suit, Employer filed a notice of lien on the legal malpractice proceeds. The trial court quashed the notice of lien and this decision was upheld by the Virginia Supreme Court. Code Sec. 65.2-309(A) provides, in relevant part, as follows: A claim against an employer under this title for injury or death benefits shall operate as an assignment to the employer of any right to recover damages which the injured employee, his personal representative or other person may have against any other party for such injury or death, and such employer shall be subrogated to any such right and may enforce, in his own name or in the name of the injured employee or his personal representative, the legal liability of such other party. "The purpose of the statute is to reimburse an employer who is compelled to pay compensation as a result of the negligence of a third party and to prevent an employee from obtaining a double recovery of funds." Tomlin v. Vance Int'l, Inc., 22 Va. App. 448, 452, 470 S.E.2d 599, 601 (1996). Under Code Sec. 65.2-310, an employer may petition the court for a lien against the third-party judgment in the amount of compensation and other benefits employer has paid. If the employee impairs the employer's right of subrogation by settling the claim without the employer's knowledge and consent, even when the employer has general knowledge that the third-party action is pending, employer may be entitled to a termination of the employee's benefits under the Act. See Green v. Warwick Plumbing & Heating, 5 Va. App. 409, 411, 364 S.E.2d 4, 6-7 (1988). The commission did not err in concluding it lacked authority to provide the requested relief pursuant to Code Secs. 65.2-309 and 65.2-310. In employer's earlier appeal of the circuit court's denial of its request for a lien, the Virginia Supreme Court denied employer's petition on the merits. See Harward v. Commonwealth, 5 Va. App. 468, 476, 364 S.E.2d 511, 515 (1988) (noting that "'decision to . . . refuse a petition for writ of error is based upon . . . the merits of the case'"(quoting Saunders v. Commonwealth, 214 Va. 697, 700, 204 S.E.2d 421, 424 (1974))). This denial constituted a ruling that Code Secs. 65.2-309 and 65.2-310 do not permit any employer to obtain a lien on proceeds from a legal malpractice suit under the facts of this case. See id. (noting that "doctrine . . . appl[ies] even when 'the precise issue involved' resulted in denial of a petition for a writ of error in a separate case'" (quoting Stillwell v. Commonwealth, 219 Va. 214, 226, 247 S.E.2d 360, 368(1978))). Overhead Door Company of Norfolk v. Daniel Lee Lewis, Record No. 0597-98-2 (January 26, 1999).
Claimant did not prejudice the employer's subrogation rights where he settled a lawsuit involving a subsequent accident that allegedly aggravated his work-related injuries sustained in an earlier compensable accident. The evidence did not establish the aggravation or a causal relationship between the injury sustained in the second accident and the earlier compensable accident. The commission properly found
that City of Newport News v. Blankenship, 10 Va. App. 704, 396 S.E.2d 145 (1990), paralleled this case and held that "claimant's exacerbation resolved in short period of time without change in claimant's symptoms from the previous accident." [W]here the employer's rights to reimbursement for compensation or medical care are limited, and where the compromise settlement is sufficient to compensate the employer and carrier for such loss, there is no prejudice to the employer from the unilateral settlement and benefits are not forfeited. Blankenship, supra. White Electric Company, Inc. v. Charles Joseph Bak, Jr., Record No. 1279-95-1 (March 12, 1996).The Workers' Compensation Act (Act) does not invest the commission with jurisdiction to order claimant or his counsel to reimburse employer's lien on certain monies paid claimant in settlement of a third-party tort action. Claimant was injured in an automobile accident, and employer accepted the resulting claim as compensable under the Act. Claimant pursued a third-party tort claim in federal court. Once aware of the pending tort action, employer advised claimant's counsel of "the workers' compensation claim and [employer's] statutory assignment and subrogation interest in the third-party recovery." Employer, however, did not intervene in the federal court proceedings and continued to provide compensation benefits to claimant pursuant to the award. "On or about June 22, 1998, . . . claimant . . . voluntarily settled his third-party action . . . for the sum of $500,000," received a net recovery of $336,672.49, released the alleged tort-feasors from further liability, and dismissed the civil suit, "with prejudice," all without notice to or approval of employer. Learning of the settlement, employer terminated benefits to claimant on September 20, 1998, after paying a total of $162,587.57 in wage and medical benefits. Employer thereafter filed an "Application for Hearing" with the commission, seeking "Termination/Suspension of the outstanding award," a related "credit" and an "order to claimant or claimant's counsel to pay statutory subrogation interest to carrier."
It is well established that the Act "permits an injured employee the right to recover from a negligent third party full damages for injuries inflicted on him by such party." Sheris v. Sheris, 212 Va. 825, 834, 188 S.E.2d 367, 373 (1972). While Code Sec. 65.2-309(C) expressly precludes settlement of a third-party claim by an employer absent approval of both the commission and the employee, "[a]n employee . . . is not expressly prohibited from initiating and settling [such] claim without the consent of employer and its insurer." Safety-Kleen Corp. v. Van Hoy, 225 Va. 64, 70, 300 S.E.2d 750, 754 (1983). However, a third-party settlement by an employee, undertaken without the "knowledge and consent of employer and its insurer," wrongfully "impair[s]" the rights of subrogation provided employer by the Act and, therefore, the employee "'forfeits any right to future compensation.'" Id. (citation omitted); Green v. Warwick Plumbing & Heating Corp., 5 Va. App. 409, 412, 364 S.E.2d 4, 6 (1988).
Claimant's benefits have been properly paid and terminated, without objection, and any unresolved residual rights of employer against him are not specifically embraced by the Act. The commission does not have jurisdiction to compel disbursements of proceeds of recovery from a third-party action. This question must be addressed to a court of law. Sicilia v. Inner View, Ltd., 1999 WL 1442124 at **2 (VWC File No. 175-51-95 (Dec. 2, 1999). Code Sec. 65.2-310 provides, inter alia, that [i]n any action by an employee . . . against any person other than the employer, the court shall, on petition or motion of the employer at any time prior to verdict, ascertain the amount of compensation paid and expenses . . . incurred by the employer under the provisions of this title and deduct therefrom a proportionate share of such amounts as are paid by [employee] for reasonable expenses and attorney's fees as provided in Sec. 65.2-311; and, in event of judgment against such person other than the employer, the court shall in its order require that the judgment debtor pay such compensation and expenses of the employer, less said share of expenses and attorney's fees, so ascertained by the court out of the amount of the judgment, . . . and the balance, if any, to [employee]. Code Sec. 65.2-310. Accordingly, an employer may safeguard a statutory claim for benefits paid or anticipated under the Act by "petition[ing] the court for a lien against the third-party judgment in the amount of compensation and other benefits employer has paid." Overhead Door Company of Norfolk v. Lewis, 29 Va. App. at 58, 509 S.E.2d at 537 (1996). Henry's Wrecker Service Company v. Smoot, Record No. 0847-00-4(May 1, 2001). WP Version.Skelly and Skelly v. Hertz Equipment Rental Corp., Record No. 2358-00-2 (January 15, 2001), en banc court affirms decision of VWC. Prior panel decision: Skelly v. Hertz Equipment Rental Corp. & Reliance Nat'l Indem. Co., 35 Va. App. 689, 547 S.E.2d 551 (June 26, 2001). The Workers' Compensation Commission did not err in holding that Hertz Equipment Rental Corporation and its insurance carrier (together Hertz) were not responsible for the payment of attorney's fees and costs related to the settlement of a third-party tort claim. The claimants contend that the commission erred in finding (1) that they settled a third-party tort claim without Hertz's consent or knowledge, and (2) that the settlement prejudiced Hertz's right of subrogation against the third-party tort-feasor.
Michael Skelly was killed in an automobile accident that arose out of and in the course of his employment by Hertz. Had the claimants sought it, an award of $248,000 (500 weeks at $496 per week) plus funeral expenses could have been entered in their favor under the Workers' Compensation Act. However, no award was entered. Hertz paid no compensation. The claimants proceeded directly with their third-party wrongful death claim against the driver of the other vehicle and his employer. Before trial the claimants accepted a settlement in the amount of $725,000. Thereafter, they sought from Hertz reimbursement of pro rata attorney's fees and costs incurred in the third-party litigation, pursuant to Code § 65.2-311. Claimant's attorney accepted the third-party tort-feasor's offer of $725,000. A copy of claimant's attorney's letter accepting settlement was sent to counsel for employer.
According to claimant's attorney, counsel for employer was satisfied with any settlement because negotiations had gone beyond the $250,000 employer's lien. However, claimant's attorney did not seek employer's permission to settle the third-party claim.
Claimant's attorney wrote counsel for employer and reminded counsel for employer about an upcoming hearing and that it was his hope that they would "be able to seek Court approval of the wrongful death action at that time, and that [they could] then turn [their] attention to the subrogation interest of [Hertz]."
The record supports the commission's findings that Hertz had not consented to the third-party settlement, that the parties had no agreement regarding attorney's fees, that "the claimants had 'one full recovery' and were not entitled to any additional benefits under the Workers' Compensation Act, and, further, that the settlement of the third-party claim without the consent of [Hertz], prejudiced [Hertz], and as a result thereof, the claimant is barred from benefits.
An employee injured in the course of employment by a negligent third party may pursue a common law remedy against the tort-feasor and a claim for compensation benefits under the Workers' Compensation Act, but may obtain only one full recovery for the injury. Noblin v. Randolph Corp., 180 Va. 345, 358-59, 23 S.E.2d 209, 214 (1942).
If the employee pursues both remedies, at such time that the employee makes a claim for workers' compensation benefits, the "claim . . . shall operate as an assignment to the employer of any right to recover damages," and the employer "shall be subrogated to [the right to recover damages] in his own name or in the name of the injured employee." Wood v. Caudle-Hyatt, Inc., 18 Va. App. 391, 395-96, 444 S.E.2d 3, 6 (1994) (quoting Code § 65.2-309(A)). "[T]he employee may not pursue his common law remedy in such a manner or settle his claim to the prejudice of the employer's subrogation right and thereafter continue to receive workers' compensation benefits." Id. at 397, 444 S.E.2d at 7 (citations omitted). The employee necessarily prejudices his employer's subrogation rights and, thus, is barred from obtaining or continuing to receive benefits under a workers' compensation award when an employee settles a third-party tort claim without notice, or without making a claim for workers' compensation benefits, or without obtaining the consent of the employer.
Id. (citation omitted).
In Wood, the employee promptly, by certified mail, notified the employer of the terms of the proposed third-party settlement, which was in excess of his potential workers' compensation benefits, and requested the employer's consent or objection within ten days. Id. at 398, 444 S.E.2d at 7. The court held that the employer was thus afforded an opportunity to object and to protect its subrogation rights, and was not prejudiced by the settlement. See id.
Here, Hertz was neither told of, nor given the opportunity to object to, the settlement offer prior to its acceptance by the claimants. Unlike the situation in Wood, the claimants' unauthorized settlement of their third-party claim prejudiced Hertz by depriving it of the opportunity to protect and assert its subrogation rights against the third-party tort-feasor. See Safety-Kleen Corp. v. Van Hoy, 225 Va. 64, 69, 300 S.E.2d 750, 753 (1983); Green v. Warwick Plumbing & Heating Corp., 5 Va. App. 409, 412, 364 S.E.2d 4, 6 (1988). Unlike the situation in Wood, Hertz was never given the opportunity to forestall the settlement. The settlement was presented to it initially as a fait accompli which, subject to court approval, was binding. Hertz, had an interest in the amount of the third-party settlement and the right to participate in its determination. Claimant's counsel did not represent Hertz' interests in the third-party claim. The claimants did not advise Hertz of the settlement offer nor obtain its consent. These actions impaired Hertz's right of subrogation and foreclosed the possibility that Hertz could lessen its obligation by negotiating a higher settlement. The claimants' right to compensation, in this case the reimbursement of attorney's fees and costs, is barred.
The claimants never pursued their rights under the Workers' Compensation Act. They proceeded directly with their third-party wrongful death suit, excluding Hertz from participation in that suit or in its settlement. They sought and received no intervening benefits under the Workers' Compensation Act. Thus, they rejected their rights under the Act and proceeded directly and independently to a full recovery at law. Skelly and Skelly v. Hertz Equipment Rental Corp., Record No. 2358-00-2 (January 15, 2001), en banc court affirms decision of VWC. Prior panel decision: Skelly v. Hertz Equipment Rental Corp. & Reliance Nat'l Indem. Co., 35 Va. App. 689, 547 S.E.2d 551 (June 26, 2001).
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