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NC: Employer Can Not Touch Worker's Award Money from Legal Malpractice Lawsuit

Grant Construction Co. v. McRae, 146 N.C. App. 370, 553 S.E.2d 89 (2001)

NC: Underlying personal injury matter

Student Contributor: Nick Kingsbury

Facts: Grant Construction’s worker was hurt on the job after a subcontractor left a dangerous condition on the site. The worker hired an attorney to represent him in his Workers Compensation case and got $10k from Grant Construction. As per a settlement agreement with Grant Const., the worker agreed to pay back Grant Const. the money from any awards he attained from a further lawsuit against the subcontractor. The attorney kept representing the injured worker, but failed to timely file a complaint against the subcontractor, blowing the statute of limitations. The worker sued the attorney for legal malpractice and settled for $26k. Grant Const. then sued the worker, the attorney, and the attorney’s insurance company, claiming that Grant should be reimbursed by the worker from the proceeds of the lawyer malpractice action. Grant also argued that the attorney harmed Grant’s ability to recover against the subcontractor, breaching the lawyer’s duty to Grant. Grant lost, and now appeals.

Issue: (1) Does an employer’s right to reimbursement (from the proceeds of a work-related injury lawsuit against a third party) extend to the legal malpractice settlement reached by the injured worker against his former attorney?
(2) Can an employer sue its worker’s lawyer for his malpractice in the handling of  the worker’s case against the third party that injured him, the proceeds of which would have gone to pay off the employer’s lien. 

Ruling: (1) No. An employer has to pay his injured worker Workers Compensation money whether the worker was injured on the job as a result of the employer’s negligence, or from a  third-party tortfeasor. The employer then has a right to recover  through a subrogation action the  Workers Comp money from any proceeds of the lawsuit between the injured worker and the third party that injured him. However, this right is extinguished if the worker does not recover from the third party. Here, since the worker’s attorney blew the statute of limitations, the worker could not recover from  the subcontractor that injured him. The legal malpractice lawsuit was a separate matter from the work-related injury lawsuit. Grant’s right to collect on proceeds from the work-related injury lawsuit does not extend to the proceeds gained from a legal malpractice lawsuit.
(2) No. The lawyer was only the worker’s attorney, not the employer’s attorney as well. The attorney represented the worker against the employer for the Workers Comp award, and against the third party subcontractor. It would be a conflict of interest for the lawyer to have represented the employer as well. Since the attorney was not the employer’s lawyer, the employer cannot sue him for legal malpractice.

Lesson: (1) The Workers Compensation Statute only allows an employer to recover Workers Comp money it paid to the injured worker if the worker later got money from the third party that injured him. If the worker never recovers from the third party because of his lawyer’s malpractice, the worker will keep all of the money he wins from his legal malpractice lawsuit against the lawyer. The employer  has no right to  be reimbursed from the proceeds of the worker’s legal malpractice victory.
(2) The employer cannot recover for legal malpractice against its worker’s lawyer. The lawyer is hired by the worker and is obligated to get as much money for the worker regardless of how it impacts the employer. The only attorney/client relationship is between the worker and the attorney, meaning only the worker could sue the attorney for malpractice.

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Posted in: North Carolina, Statute of Limitations