Virginia Lawyers Weekly

Virginia insurance law generally gives a workers’ compensation carrier a lien on the proceeds from a personal injury lawsuit against a third party.

There is a major exception to that general rule, however. No lien is available on a recovery under uninsured motorist provisions.

Frustration by Travelers Casualty & Surety Co. over the exception has led the company to stretch its legal remedies under the law well past the breaking point, Norfolk attorney Jeffrey A. Breit alleges in a suit against the carrier and two attorneys who represented it.

Under state subrogation law, a carrier can file suit against a responsible party in the name of the claimant once it has paid a claim. However, the law requires the carrier to notify the claimant and to protect her interests, not just those of the carrier, if it does so. Breit alleges that Travelers tried to hide its suit from his client, even though it was filed in her name, and made no effort to recover damages beyond its lien.

The issue stemmed from injuries Gail L. Denobrega suffered in Norfolk in June 2005 when her car was hit while she was traveling for her employer. The driver of the other vehicle, David B. Beckner, had no insurance.

Travelers ultimately paid Denobrega $49,034 in workers’ comp benefits. Shortly after she was injured, a claims representative notified Breit’s firm of its coverage of Denobrega. The representative confirmed that Beckner was uninsured and that no lien was available on the uninsured motorist benefits under Denobrega’s policy with State Farm Mutual Automobile Insurance Co.

In May 2007, a month before Breit filed suit in Norfolk Circuit Court, Travelers filed suit in Richmond Circuit Court against Beckner in the name of Denobrega and her employer seeking the exact amount it had paid in workers’ comp benefits.

Breit alleged that Travelers and its attorneys did so in an effort to hide the suit because Richmond had neither jurisdiction nor venue over the action. Moreover, they failed to notify the law firm, its client or her employer of its suit before or after they transferred the case in September 2007 to Norfolk Circuit Court, where jurisdiction and venue were proper.

Beckner did not respond to the suit, and Travelers moved for default judgment in the precise amount it had paid Denobrega even though the motion for the default judgment listed property damage to her automobile in addition to personal injury and lost wage claims.

The default judgment was entered April 25, 2008, and Breit’s firm did not learn about it for almost two months, well after the 21-day period in which it could have challenged the judgment had passed.

When Breit’s firm became aware of the judgment and contacted Travelers, its agents said they did not believe it was fair for Denobrega to collect twice for her medical bills and lost wages, even though the Supreme Court of Virginia has held that the state’s collateral source rule requires that result, Breit said.

After that conversation, the attorneys who had represented the company, Terry C. Legum and Adam R. Wilk of Fairfax, filed papers to vacate the judgment and dismiss the case without prejudice.

However, Todd M. Fiorella, the attorney State Farm had retained to represent it and Beckner on the UM claim, objected. Fiorella contended that Travelers had no legal right to have the default judgment set aside because filing pleadings with no basis in fact was a serious mistake, but hardly a fraud on the court that warranted setting aside the judgment. Beckner and State Farm were entitled to rely on the final judgment that had been entered against Beckner as full satisfaction of Denobrega’s claim against him, Fiorella argued.

Fulton directed Travelers’ attorneys to file briefs on the fraud issue by July 31, but they did not do so. As a result, the default judgment became final and the doctrine of res judicata barred Breit’s suit against Beckner and State Farm.

Breit then filed the suit against the carrier, Legum and Wilk. “Travelers and its agents filed their lawsuits in the plaintiff’s name with the full intention to take over the claim of [Denobrega] and restrict the damages she may be able to recover,” Breit alleged in the lawsuit.

Breit said state law permits a workers’ comp carrier to seek subrogation from the responsible party, but it does not allow the carrier to represent its interests to the exclusion of those of the claimant.

The suit seeks $1 million in compensatory damages and $350,000 in punitive damages.

Breit said the ultimate result may be that Denobrega will be able to recover more from Travelers than she could have received under the UM policy because the maximum coverage under it was $250,000.

Efforts to get a response from the defendants to Breit’s lawsuit were unsuccessful.

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