COURT OF APPEALS OF VIRGINIA 

Present: Chief Judge Moon, Judge Coleman and Senior Judge Cole 

Argued at Richmond, Virginia 

ALEXANDRIA KITCHEN & BATH STUDIO, INC. AND 

 HARTFORD UNDERWRITERS INSURANCE COMPANY 

 MEMORANDUM OPINION* BY 

v. Record No. 2259-96-3 JUDGE MARVIN F. COLE 

 JULY 29, 1997 

GARY HARE 

 FROM THE VIRGINIA WORKERS' COMPENSATION COMMISSION 

 Benjamin J. Trichilo (Trichilo, Bancroft, 

McGavin, Horvath & Judkins, P.C., on 

briefs), for appellants. 

 George L. Townsend (Chandler, Franklin & 

O'Bryan, on brief), for appellee. 

 Alexandria Kitchen & Bath Studio, Inc. (employer) and 

Hartford Underwriters Insurance Company (Hartford) appeal a 

decision of the Workers' Compensation Commission (commission) 

denying their application to terminate Gary Hare's workers' 

compensation benefits. Employer and Hartford contend that the 

commission erred in finding that Hare's settlement of a 

third-party tort claim without the consent or knowledge of 

employer or Hartford did not necessitate a termination of Hare's 

workers' compensation benefits, and that such settlement did not 

prejudice their right of subrogation against the third-party 

tortfeasor. 

 We find that the evidence proved that Hare effected a 

 

 *Pursuant to Code § 17-116.010 this opinion is not 

designated for publication. 
 2 

 

settlement of his third-party claim and released the third-party 

tortfeasor without informing employer or Hartford of the terms of 

the proposed settlement, thereby prejudicing their right of 

subrogation against the third-party tortfeasor as a matter of 

law. Accordingly, we find that the commission erred in not 

terminating Hare's workers' compensation benefits, and we reverse 

the commission's decision. 

 I. 

 On January 20, 1995, Hare sustained injuries as the result 

of an automobile accident which occurred in the course of Hare's 

employment. On March 8, 1995, pursuant to a memorandum of 

agreement between Hare and employer, the commission entered an 

award providing Hare with temporary total disability benefits and 

medical expenses. As of July 26, 1995, Hartford had paid Hare a 

total of $86,438.54 in disability and medical benefits. 

 As a result of the automobile accident, Hare asserted a tort 

claim against the driver of the other vehicle, Kristen Deal. 

Omni Insurance Group (Omni) insured Deal for liability with a 

policy limit of $25,000. Hare also had his own liability policy, 

which provided underinsured motorist coverage through Allstate 

Insurance Company (Allstate).1

 

 Anthony Smith, a claims specialist employed by Hartford, 

 1The parties stipulated that employer and Hartford were not 

entitled to assert any subrogation lien against the uninsured 

motorist coverage because the accident occurred prior to the 

enactment of Code § 65.2-309.1. 
 3 

testified that Hartford did not authorize any person associated 

with employer to settle or compromise Hartford's lien. Smith 

acknowledged that he had discussed Hartford's lien with James 

Turner, Hare's counsel in the third-party claim. However, Smith 

denied that Turner ever offered $16,667 to Hartford from the 

underlying liability limits of the Omni policy. Rather, Smith 

stated that Turner offered Hartford $5,000 to waive its lien, and 

Turner told Smith that if Hartford did not take the $5,000, Hare 

might declare bankruptcy. Hartford rejected the $5,000 offer. 

Smith stated that Hartford never authorized Turner or Hare to 

release Deal, nor did Turner or Hare ever request such 

authorization prior to Hare signing the release on or about 

August 8, 1995. Hartford turned over the protection of its lien 

to William Korth, Hartford's house-counsel, in late July or early 

August 1995. 

 Korth testified that Hartford referred this case to him at 

the end of July 1995. Korth stated that when he first spoke to 

Turner, Turner reiterated the $5,000 offer and said that Hare 

might declare bankruptcy if Hartford did not accept the offer. 

On August 2, 1995, Korth sent a letter to Omni's registered 

agent, notifying Omni of Hartford's subrogation lien. At that 

time, Turner had increased his offer to compromise Hartford's 

lien to $7,500. In an August 2, 1995 letter, Korth rejected the 

$7,500 offer made by Turner. On August 8, 1995, Korth received a 

letter from Turner via fax indicating that Hare had settled his 
 4 

third-party claim against Deal for the liability policy limit of 

$25,000, plus $75,000 from Allstate. The letter indicated that 

$16,667.67 would be paid to Hartford in satisfaction of its lien. 

 Hare stipulated that he signed a release of all claims releasing 

Deal from any further liability on or about August 8, 1995. 

 On August 8, 1995, Korth wrote to Turner, stating that the 

settlement occurred without Hartford's knowledge, consent, or 

approval. On August 15, 1995, employer/insurer filed an 

application to terminate Hare's workers' compensation benefits 

based upon his settlement of the third-party claim without 

Hartford's consent or approval. Korth testified that Hartford 

never authorized Hare to sign the release of all claims against 

Deal, nor did Turner or Hare ever request such authorization. 

Korth contended that he did not try to determine if Deal had 

additional assets because he did not have sufficient time to do 

so between receiving the file on July 26, 1995 and the settlement 

on August 8, 1995. An August 15, 1995 letter from Omni to Korth 

indicated that Omni settled the third-party claim on July 24, 

1995 without any knowledge of Hartford's lien. 

 Turner testified that he knew Hartford was asserting its 

$86,438.54 lien before he settled the third-party claim. Turner 

contended that Korth verbally acknowledged to him that Hartford 

was only entitled to the $16,667. Turner admitted that Hartford 

did not authorize Hare to sign the release of all claims against 

Deal. Turner stated that he requested authorization from Korth 
 5 

for Hare to sign the release, but Hartford refused to give such 

authorization. Korth denied that Turner ever made such a 

request. Turner's disbursement sheet reflected that the 

settlement was completed on August 8, 1995. On August 10, 1995, 

Turner tendered a $16,667 check to Hartford through Korth. 

Turner stated that he had informed Korth of the availability of 

the $16,667 before the settlement. Smith and Korth denied that 

Turner or Hare had ever offered the $16,667 prior to the 

settlement. Turner stated that prior to the settlement, he had 

also informed Korth that his investigation had revealed that Deal 

had no assets other than the $25,000 liability policy. Korth 

testified that prior to August 8, 1995, he and Turner never 

discussed any information concerning an investigation of Deal's 

assets, other than her liability insurance policy. Turner 

testified that Deal committed suicide.2

 Hare testified that he did not personally obtain written 

consent from employer to settle his third-party claim before 

August 8, 1995, nor did he obtain Hartford's permission to settle 

his third-party claim. 

 II. 

 The deputy commissioner found that Hartford knew about 

Hare's third-party claim against Deal prior to the settlement. 

 

 2The deputy commissioner allowed Turner's hearsay testimony 

concerning his investigation of Deal's assets and her death not 

for the truth of the matters asserted but to complete the record 

and to show Turner's understanding of Deal's assets. 
 6 

The deputy commissioner found that the settlement occurred on or 

about July 24, 1995 based upon Omni's letter, and that Hare 

executed a full release of Deal on August 8, 1995. Relying upon 

Korth's testimony, the deputy commissioner found that the 

settlement was made without Hartford's consent or knowledge, 

which consent Hartford did not unreasonably withhold. Moreover, 

the deputy commissioner found no evidence that employer consented 

to the settlement prior to its occurrence. The deputy 

commissioner also found that Hare's settlement impaired 

Hartford's right of subrogation as a matter of law, finding that 

Hartford did not have to prove as a matter of fact that its 

ability to recover from Deal had been diminished. Accordingly, 

the deputy commissioner terminated Hare's workers' compensation 

benefits. 

 The full commission reversed the deputy commissioner's 

decision. Relying upon Wood v. Caudle-Hyatt, Inc., 18 Va. App. 

391, 444 S.E.2d 3 (1994), the commission concluded that 

Hartford's subrogation rights were not prejudiced by the 

settlement between Hare and Deal. The commission found that 

Hartford did not object to the terms of the settlement, of which 

it was made aware, did not attempt to intervene in the 

third-party proceedings, did not refer the matter to Korth until 

late July 1995, and did not make any investigation into Deal's 

assets. Based upon these findings, the commission denied the 

application seeking to terminate Hare's compensation benefits. 
 7 

In addition, the commission found that Hartford had effectively 

communicated to Hare that the terms of the settlement were 

appropriate to protect its subrogation rights, because Hartford 

received the $16,667 and converted that money to its own use. 
 8 

 III. 

 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 § 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, 18 

Va. App. at 397, 444 S.E.2d at 7. 

 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. 

 In Wood, the employee promptly notified the employer by 

certified mail of the terms of the proposed third-party 

settlement, which was in excess of the workers' compensation 

benefits that the employee could receive, and the employee 

requested the employer's consent or objection within ten days. 

Id. at 398, 444 S.E.2d at 7. Based upon this evidence, we found 

that the employer was afforded every opportunity to protect its 
 9 

subrogation rights, and, therefore, it failed to prove that it 

was prejudiced by the settlement. 

 The facts in Wood are distinguishable from those in this 

case. Here, no credible evidence proved that Hare notified 

employer or Hartford of the specific terms of the proposed 

settlement prior to July 24, 1995, the uncontradicted date upon 

which Hare effected the settlement with Omni, or even prior to 

August 8, 1995, the date upon which settlement proceeds were 

disbursed and Hare released Deal. In Wood, unlike this case, the 

evidence showed that the employer was given the opportunity to 

object or participate in the settlement and was informed of the 

terms of the settlement. Therefore, unlike the situation in 

Wood, Hare's unauthorized settlement of his third-party claim 

necessarily prejudiced employer and Hartford by depriving them of 

the opportunity to protect and assert their subrogation right 

against Deal. 

 The commission erred in taking into account the fact that 

Hartford and employer did not intervene in the third-party claim. 

 We have previously held that 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 
 10 

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. Moreover, contrary to the 

commission's finding, no credible evidence showed that Hare ever 

instituted a third-party lawsuit against Deal or that any suit 

was pending in which employer could have intervened. As in 

Barnes, the uncontroverted evidence in this case proved that Hare 

first notified employer and Hartford of the third party 

settlement after it had been effected on July 24, 1995. In 

addition, Hare's argument that employer was not prejudiced 

because Deal did not have any assets other than the liability 

insurance policy is without merit. Hare extinguished his claim 

against Deal before its value could be tested either by himself 

or his subrogees. See Ball, 13 Va. App. at 474, 413 S.E.2d at 

69. Any evidence that a claim against Deal was valueless was 

speculative at best. See id. Thus, the commission erred in 

considering such evidence as a factor in finding that employer 

failed to prove it suffered prejudice as a result of the 

unauthorized settlement. "The rule is well-settled and plain. 

[Hare] forfeited his right to further compensation by 

unilaterally depriving the employer and the insurer of their 

right to seek reimbursement from the third [party]." Id. at 
 11 

474-75, 413 S.E.2d at 69. 

 For these reasons, we reverse the commission's decision and 

direct the commission to enter an order consistent with this 

opinion. 

 Reversed.