Defending Insurers from Direct Actions by Medical Providers

Written by Helen Jhun, Esq.

Edited by Billpfund , Esq.

When settling cases, liability insurers often have to deal with claims of various lienholders and assignees who also claim to have an interest in settlement proceeds. Medical providers have a statutory lien under Virginia Code Sections 8.01-66.2 and 8.01-66.5. In addition to the statutory liens, medical providers who commonly treat injuries related to personal injury cases will often require their patients sign an assignment of benefits. This allows treatment of individuals who may not be able to pay out-of-pocket medical expenses up front. Rather than receiving payment up front, providers agree to be paid upon settlement of a suit.


When a Plaintiff is represented by an attorney, there is an affirmative ethical duty on the Plaintiff’s attorney to ensure that all liens and assignments are protected. However, when a Plaintiff is pro se, insurers must deal with the question of who is responsible for protecting those claims.


The Supreme Court of Virginia very recently answered the question of whether an assignee can maintain an action against a liability carrier for failing to protect his assignment of benefits when settling with a pro se claimant. In the case Erie Insurance Company v. McKinley Chiropractic Center, VLW 017-6-072 (September 14, 2017) , the Supreme Court held, in very clear terms, that a medical provider, as the assignee of benefits, cannot maintain a direct action against a liability insurer for failing to honor the assignment.


The facts in the Erie case are very common in liability claims. A party claims he is injured in a motor vehicle accident and seeks treatment with a chiropractor. The injured party executes a document assigning his chiropractor “all insurance and/or litigation proceeds to which Patient is now or may hereafter become entitled” and “any and all causes of action that Patient might have or that might exist in Patient’s favor against such insurance company.”  The pro se claimant then settles directly with the liability insurer, releasing both the carrier and its insured driver.


In this case, the chiropractor had previously sent written notice to the liability carrier, in the form of a copy of the assignment of benefits. Once the case was settled, the chiropractor filed a direct action against the liability insurer for failing to honor the assignment. Specifically, the chiropractor sought to file a direct action in his own name against the liability insurer under the assignment of benefits under Virginia Code Section 8.01-13.


Virginia Code Section 8.01-13 provides that the “assignee or beneficial owner of any bond, note, writing or other chose in action, not negotiable may maintain thereon in his own name any action which the original obligee, payee, or contracting party might have brought.” (emphasis added). The Court ultimately held that because the injured party would never have a right to file a direct action against the liability insurer, an assignee of benefits would likewise never have a right to file a direct action against the liability insurer.


It has been a long held, well-established principle under Virginia law that an injured party could not bring a direct action against a liability insurer, solely on account of the existence of a liability policy. United Services. Auto. Ass’n. v. Nationwide.  218 Va. 861, 867, 841 S.E.2d 784, 788 (1978).     An injured party possess no right to recover tort damages from the tortfeasor’s insurer until reducing to a judgment his claim against the tortfeasor. Virginia Code Section 8.01-5(B).


Because the injured party never obtained a judgment against the insured tortfasor, the injured party never had any right or grounds to make any direct claim against the tortfeasor’s liability carrier. Thus, the assignee of benefits likewise never had any right or grounds to make a direct action against the liability carrier.


Furthermore, when the injured party signed a release, releasing both the liability carrier and the insured tortfeasor, then all existing and future rights to recover damages were extinguished.


In its ruling, the Supreme Court specifically held that “at no time did a right exist on which basis Dodson (the injured party) could have maintained an action against Erie (the liability insurance carrier), and in turn at no time did a right exist on which basis McKinley (the chiropractor), as Dodson’s assignee, could maintain an action in its own name against Erie.”


This is a valuable case from the Supreme Court, as it confirms that a liability insurer is not subject to double indemnity if the injured party fails to honor his assignment of benefits. However, it is very important to note that this case addresses only a claim pursuant to a contractual assignment of benefits between an injured party and his medical provider. This does not apply to a claim made by Medicare under the Medicare Secondary Payer Act. Under the MSPA, a liability insurer may be subject to double indemnity if a Medicare lien is not protected.

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