Payee Notification Bill Withdrawn

In this session of the General Assembly, the Virginia State Bar asked Senator Norment to put a bill before the legislature that would require insurance companies to notify a claimant or plaintiff that a settlement check has been sent to the claimant's or plaintiff's lawyer.  Insurance companies typically send settlement checks directly to the claimant's lawyer, payable jointly to the client and the lawyer.  This procedure allows the lawyer to protect his or her lien on the settlement proceeds.  Because the insurer typically does not communicate with a represented claimant, including when it sends a settlement check to the claimant's lawyer, a dishonest lawyer can steal the client's portion of the settlement by forging the client's signature and settle the client's claim with the insurance company without the client's knowledge or consent.  Stephen Conrad, a now disbarred lawyer who practiced in Woodbridge, Virginia, is estimated to have stolen millions of dollars from personal injury clients whose cases he settled without their knowledge.  A dishonest lawyer will stall the client by lying about the status of the client's case so the client is deceived into thinking the case is still pending.  The victims of these thefts usually cannot succeed in getting the fraudulent settlements set aside because the insurance company has the right to rely on the apparent authority of the lawyer to settle the client's case.  The client's only recourse then is to make a claim against the client protection fund, but the Fund limits payment to $50,000 for losses incurred on or after July 1, 2000.

Experience has shown that these problems are substantially reduced in states that have adopted payee notification laws like the proposed bill introduced in the Virginia General Assembly this session.  The ABA has a Model Payee notification rule--which is not part of the Model Rules of Professional Conduct, that simply requires the insurer, when making payment in excess of a threshold amount (such as more than $5000) in settlement of third party liability claim, to send a written notice to the claimant that a settlement check has been sent to their lawyer.

The Virginia Trial Lawyers Association objected to the bill (SB 511) submitted on behalf of the Virginia State Bar and contacted the Chief Justice of the Supreme Court of Virginia, who in turn requested that the bar withdraw its bill from consideration by the General Assembly this session.  Chief Justice Hassell, in a conference call with VSB Executive Director Karen Gould, and VTLA Executive Director Jack Harris, advised that this decision was made with unanimity among the justices at the Court.  The Chief Justice said he wants to discuss the issue at a meeting with representatives from 17 statewide bar groups that he generally convenes once a year.  HB 511 passed the Senate by a vote of 38 to 2 and crossed over to the House where it was stricken from the docket by the Commerce and Labor Committee on March 2, 2010.  A similar bill, HB 738, was introduced by Del. Albo on behalf of the VTLA but the bill never made it out of the Courts of Justice Committee in the House.

Hopefully, the powers that be will see the wisdom of this measure--to protect clients and third parties from lawyers stealing their funds--and get this law on the books before another Stephen Conrad comes along.  Critics of the bill, particularly personal injury lawyers, voice the concern that the proposed bill would invite insurance company reps to communicate directly with their client and would create mischief.  This concern was easily addressed by language included in HB 738 that stated "No other information is authorized by this section to be communicated orally or in writing to such a claimant by a payer."