Court Rejects Ahlborn Method for Determining the Enforceable New York Workers' Compensation Lien and Future Payment Amounts

WORKERS' COMPENSATION – LIEN AGAINST PERSONAL INJURY RECOVERY
Scheer v. New York State Ins. Fund
(Sup. Ct., Erie Co., decided 10/16/2008)

In what appears to be a case of first impression, the Erie County Supreme Court has declined to apply the equitable considerations outlined in the United States Supreme Court Medicaid-lien case Arkansas Dept. Of Health and Human Servs. v Ahlborn (547 US 268 [2006]) to set (a) the amount of the workers' compensation lien to be enforced against the proceeds of settlement of the injured employee's tort or personal injury action, and (b) of the workers' compensation carrier's obligation to make future compensation payments to the injured employee, instead following the methodology set forth by the New York Court of Appeals in Matter of Kelly v State Insurance Fund (60 NY2d 131 [1983]) and Burns v Varriale (9 NY3d 207 [2007]).

Ahlborn concerned the valid scope of a Medicaid or social services lien against the tort recovery of a Medicaid beneficiary. It did not arise under New York's workers' compensation scheme. Ahlborn held, as a matter of federal and not state law, that the requirement that state Medicaid officials seek recovery from liable third parties authorizes an assignment to the public of i.e., permits the enforcement of the public's lien against — the injured party's recovery of medical expenses only, and not other elements of damages, including lost wages, pain and suffering, etc., recovered by the injured party (see Ahlborn, 547 US at 283-285, 991-292). Even more fundamentally, Ahlborn suggests that the Medicaid lien is to be enforced against the recovered medical expenses only in the proportion that the gross amount of the settlement bears to the true or actual value of the case, i.e., the amount of damages that might reasonably have been expected to be recovered by the injured party absent any liability issues or practical impediments to recovery (see Ahlborn, 547 US at 274, affg Ahlborn v Arkansas Dept. of Human Services, 397 F 3d 620, 622 [8th Cir 2005]). In this case, Scheer sought to import those equitable considerations from the sphere of the Medicaid lien cases into this workers' compensation lien situation.

In a meticulously written decision, Erie County Supreme Court Justice Patrick Nemoyer declined to do so, instead holding:

In other words, up to the amount of any past compensation paid, the lien is enforceable against the entire amount of the recovery or settlement in the third-party action (albeit after subtraction of attorneys' fees and other litigation costs) (see Matter of Granger v Urda, 44 NY2d 91, 96 [the "carrier shall have a lien on the proceeds of any recovery by the claimant to the extent of compensation and medical expenses awarded"], 99 [the "section 29 lien in favor of a compensation carrier . . . attaches to the proceeds of any recovery' in favor of a compensation claimant against a third party"] [1978]; see also McHenry, 236 AD2d at 91). Consequently, the funds to which the lien attaches properly include any sums earmarked for pain and suffering or other elements of damages not covered by workers compensation (see Scannell v Karlin, 252 AD2d 552, 553 [2d Dept 1998], lv denied 93 NY2d 805 [1999]; Matter of Parmelee v International Paper Co., 157 AD2d 878 [3d Dept 1990]; Matter of Simmons v St. Lawrence County CDP, 147 AD2d 323, 325 [3d Dept 1989]; cf. Johnson v Buffalo & Erie County Private Industry Council, 84 NY2d 13, 17-20 [1994). Therefore, there is no occasion under the New York scheme for inquiring into whether and to what extent the case may have been settled by the injured worker for less than its true value or his actual total damages. Equally significantly, because the compensation carrier is entitled to a lien against the entire amount of the injured worker's recovery or settlement, there is no occasion under the New York scheme for inquiring into what portion of the settlement proceeds covers lost wages and medical expenses for which the injured worker has already been compensated, as opposed to pain and suffering or other items of damage not covered by workers' compensation.

Kudos to my former associate Tom Etzel for obtaining this result for the SIF. In light of Kelly and Burns, short of legislative change, it will be difficult for personal injury plaintiffs to convince a lower state court to apply the Ahlborn principles to New York workers' compensation lien determinations.

Court Denies Motion to Vacate Waiver of SOL Defense in Extension Stipulation

NO-FAULT – INSURANCE LAW § 5104(B) – LIEN RECOVERY – SUBROGATION – STATUTE OF LIMITATIONS – WAIVER OF SOL DEFENSE
GEICO v. West Twenty-Ninth Corp.
(Sup. Ct., Nassau Co., decided 6/18/2008)

In Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986), the New York Court of Appeals explained:

Insurance Law § 673 (2) [now 5104(b)] offers an insurer two means for recouping first-party benefits paid to a covered person for injuries caused by a noncovered person. Both of the procedures bear some relationship to common-law actions. First, the insurer has the right to proceed directly against the tort-feasor, a right akin to the common-law right of subrogation (Safeco Ins. Co. v Jamaica Water Supply Co., 83 AD2d 427, affd 57 NY2d 994). Second, the insurer may proceed against the injured party by asserting a lien against any recovery obtained by that party from the tort-feasor.

New York Insurance Law § 5104 (b) states:

In any action by or on behalf of a covered person, against a non-covered person, where damages for personal injuries arising out of the use or operation of a motor vehicle or a motorcycle may be recovered, an insurer which paid or is liable for first party benefits on account of such injuries shall have a lien against any recovery to the extent of benefits paid or payable by it to the covered person. No such action may be compromised by the covered person except with the written consent of the insurer, or with the approval of the court, or where the amount of such settlement exceeds fifty thousand dollars. The failure of such person to commence such action within two years after the accrual thereof shall operate to give the insurer a cause of action for the amount of first party benefits paid or payable against any person who may be liable to the covered person for his personal injuries, which cause of action shall be in addition to the cause of action of the covered person; provided however, that in any action subsequently commenced by the covered person for such injuries, the amount of his basic economic loss shall not be recoverable.

In Safeco Ins. Co. v. Jamaica Water Supply Co., 83 A.D.2d 427 (2nd Dept. 1981), affd. 57 N.Y.2d 994 (1982), the Second Department ruled:

Since, as we have found, the statute was intended to, and clearly provides, that a new and independent action is created in favor of the insurer, but only upon the lapse of two years after the injury to the insured, during which the insured had failed to sue for first-party benefits, the insurer's action could not accrue until after both of these conditions have been satisfied. Subdivision 2 of section 673 does not, either expressly or impliedly, evince any intent that the usual term of the applicable Statute of Limitations be shortened or modified in any way. Hence the insurer here was entitled to sue for the first-party benefits within three years after the completion of two years after the injury (since Morris had not sued for such benefits during that period of two years).

If the claimant does sue the tortfeasor during that two-year period after the accident, and includes a claim for first-party BEL benefits, the no-fault insurer's recourse under Insurance Law § 5104(b) is relegated to enforcement of its lien against any tort recovery.

APIP subrogation actions, however, take a 3-year SOL from the accident date. Allstate Ins. Co. v. Stein, 1 N.Y.3d 416 (2004).

The recovery of basic economic loss (BEL) payments in an action under Insurance Law § 5104(b) requires than the defendant be a "non-covered person" which, by the converse of § 5102(j) is any person or entity other than "any pedestrian injured through the use or operation of, or any owner, operator or occupant of, a motor vehicle which has in effect the financial security required by article six or eight of the vehicle and traffic law or which is referred to in subdivision two of section three hundred twenty-one of such law; or any other person entitled to first party benefits."

This case appears to involve a 5104(b) action against a garage owner and employee who was operating a customer's car at the time of an April 8, 2003 accident that injured GEICO's insured, a pedestrian. GEICO commenced this action on September 12, 2007, seeking to recover $47,544 in BEL benefits paid to or on behalf of its insured. Although GEICO's insured had commenced an action against the garage owner and employee five weeks after the accident, GEICO contended that she did not sue for first-party BEL benefits, giving GEICO the right to commence this action within 5 years of the accident date. At some point, not clear from the decision, GEICO's insured settled her personal injury action against the garage owner and driver and executed an unconditional, unreserved and unlimited release.

Counsel for the defendant requested an extension to answer the complaint and, in preparing the corresponding stipulation, apparently included a waiver of any statute of limitations (SOL) defense. Upon realizing that, defense counsel then moved: (1) to vacate and withdraw that SOL waiver; and (2) for summary judgment dismissing the complaint upon the grounds of plaintiff's lack of standing and capacity to sue, statute of limitations, and release.

In his decision, Nassau County Supreme Court Justice Antonio Brandveen outlines and recites the parties' contentions without much analysis and discussion before denying both defense motions:

The defense here has not met the burden of showing that portion of the plaintiff' s stipulation extending time to appear and answer dated January 21 , 2008 , which purports to waive the defense of statute of limitations should be vacated and modified.

These defendants here have failed to satisfy the prima facie burden of establishing entitlement to judgment as a matter of law. This Court determines that material issues of fact exist which require a trial of the action[.]

It is difficult to discern from the facts recited in this decision whether GEICO's action was timely commenced. It is also unclear whether, in denying defendants' motion to vacate the extension stipulation's SOL waiver, the court will consider and rule on that defense at some point in this case.

When in doubt, best practice would be to commence the 5104(b) action within Year # 3 after the accident date, rather than to rely on what has sometimes been called the two-year "tolling provision" of 5104(b). See, Allstate Ins. Co. v. Yetish Inc., 2006 NY Slip Op 50471U, 11 Misc. 3d 134A (App. Term, 2nd Dept., 2006).