Monday, October 20, 2008

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

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.

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