Case Title: St. Paul Fire Marine Insurance v. Surdam

Citation: 

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1990-12-01T00:00:00Z

Document:
NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.

                                No. 89-554


St. Paul Fire and Marine                     Supreme Court
Insurance Company
                                             On Appeal from
     v.                                      Washington Superior Court

Marie Surdam                                 December Term, 1990


Matthew I. Katz, J.

John P. Riley of McKee, Giuliani & Cleveland, Montpelier, for plaintiff-
  appellee

Thomas Dailey, Bennington, and Jill Nagy of Lee & LeForestier, P.C.,
  Troy, New York, for defendant-appellant


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


     MORSE, J.   Defendant, a Vermont resident, was injured in a work-
related automobile accident in New York state.  St. Paul, a workers'
compensation insurance carrier for defendant's employer, paid defendant
$40,000 in benefits.  It now seeks to recover that amount from an $85,000
settlement reached in a lawsuit brought by defendant in New York against the
driver of the other vehicle involved in the accident.  The trial court
entered judgment in the carrier's favor.  The issue raised on appeal
concerns the interpretation of Vermont's workers' compensation law, 21
V.S.A. { 624(e), permitting the carrier to recover the amount of benefits it
paid from monies received by the worker in a personal injury action against
a third party.  We hold that the trial court misinterpreted the law and,
accordingly, reverse.
     The parties agree that Vermont's statute on reimbursing workers'
compensation carriers governs.  Specifically, 21 V.S.A. { 624(e) states:
           In an action to enforce the liability of a third
         party, the plaintiff may recover any amount which the
         employee or his personal representative would be
         entitled to recover in a civil action.  Any recovery
         against the third party for damages resulting from
         personal injuries or death only, after deducting
         expenses of recovery, shall first reimburse the employer
         or its workers' compensation insurance carrier for any
         amounts paid or payable under this chapter to date of
         recovery, and the balance shall forthwith be paid to the
         employee or his dependents or personal representative
         and shall be treated as an advance payment by the
         employer on account of any future payment of
         compensation benefits.  (Emphasis added.).

     If Vermont law had governed the merits of the New York personal injury
action, defendant could have recovered damages for both economic losses,
such as medical and other out-of-pocket expenses and lost income
proximately caused by the accident, and noneconomic losses, such as pain and
suffering and other related nonmonetary injury.  In contrast, New York
provides that workers' compensation and no-fault automobile insurance
cover all economic loss and limits recovery against third parties to
noneconomic losses.  The parties have agreed that New York law governs what
damages are recoverable in defendant's action against the other driver.
     The New York Court of Appeals recently explained how the New York
system is intended to work:
           A seriously injured automobile accident victim is
         allowed to plead for basic economic loss recovery as
         well as for noneconomic loss in a direct action, but the
         final judgment must be reduced by the court by the
         amount of basic economic loss, for which recovery in the
         direct action forum is forbidden (Insurance Law {
         5104[a], [c]).  The final judgment then reflects the
         victim's noneconomic damages only, such as pain and
         suffering or customarily unquantifiable detriments.  The
         intended result is that the injured person is made
         "whole" by receipt of workers' compensation and no-fault
         automobile insurance benefits representing economic
         losses, combined with the direct action noneconomic
         damages.

Dietrick v. Kemper Insurance Co., 76 N.Y.2d 248, 252-53, 556 N.E.2d 1108,
1110-11, 557 N.Y.S.2d 301, 303-04 (1990).  Thus, in this case, defendant's
third-party settlement can be understood only as compensation for
noneconomic losses.
     New York not only limits what injured employees can recover from third
parties, it also limits what worker's compensation carriers can recover.
Indeed, if New York law were applied to the facts of this case, the carrier
could recover nothing from defendant or anyone else.
     New York workers' compensation law grants to a workers' compensation
carrier a lien, in the amount of compensation it has paid, on the proceeds
of an employee's action against a third party.  N.Y. Work. Comp. Law {
29(1) (McKinney Supp. 1991).  A workers' compensation carrier, however,
cannot recover proceeds received "whether by judgment, settlement or
otherwise . . . which were in lieu of first party benefits."  N.Y. Work.
Comp. Law { 29(1-a) (McKinney Supp. 1991).  "First party benefits" are
payments made by an insurance carrier to an accident victim for "basic
economic loss" due to personal injuries up to $50,000.  N.Y. Ins. Law { 5102
(b), (a) (McKinney 1985); see Dietrick, 76 N.Y.2d  at 251, 556 N.E.2d  at
1109, 557 N.Y.S.2d  at 302.  When an accident victim receives workers'
compensation, the no-fault carrier can deduct that sum from the proceeds it
is required to pay.  Id. at 251, 556 N.E.2d  at 1109-1110, 557 N.Y.S.2d  at
302-03.  Thus, in New York, the workers' compensation carrier provides
primary coverage for the first $50,000 of basic economic loss.  For example,
the carrier here paid only in $40,000 compensation, and if New York law had
governed, would not be entitled to a lien for that amount.
     Where workers' compensation payments are limited to first party
benefits and a lien on proceeds recovered from third parties is therefore
unavailable, the carrier may seek a "loss transfer" from a negligent third-
party's insurer by a statutorily mandated arbitration process, N.Y. Ins. Law
{ 5105 (McKinney 1985).  See Vinson v. Berkowitz, 83 A.D. 531, 532, 441 N.Y.S.2d 460, 462 (N.Y. App. Div. 1981) (1978 amendments to workers'
compensation and no-fault insurance statutes took away compensation
carrier's lien and replaced it with inter-company loss transfer provisions).
It has not been shown that plaintiff could have used this process because it
applies only if at least one of the motor vehicles involved in the accident
weighs more than 6500 pounds or is "used principally for the transportation
or persons or property for hire," N.Y. Ins. Law { 5105.  If plaintiff were
eligible for arbitration, however, that would be its sole method of
recoupment under New York law.  N.Y. Work. Comp. Law { 29(1-a).
     In Vermont, a successful worker-plaintiff may recover both economic
and noneconomic damages from a third party, and the workers' compensation
carrier may recoup its compensation award.  Neither state permits the
injured employee a double recovery at the compensation carrier's expense;
the insurance schemes differ only in who has the primary responsibility for
economic loss.  In this case, under the New York scheme, the carrier could
not recoup from defendant or the third party sued in New York.
     The carrier's attempt to mesh Vermont's law on reimbursement with New
York's law on recovery of damages creates an anomaly unanticipated by either
state's scheme.  Instead of double recovery, defendant would be saddled with
a "double debit."  See Dietrick, 76 N.Y.2d  at 252, 556 N.E.2d  at 1110, 557 N.Y.S.2d  at 303.  If we follow the carrier's interpretation of { 624(e),
although defendant can recover only noneconomic damages from the negligent
third party, she must nonetheless rob Peter to pay St. Paul, using money
recovered for noneconomic damages in New York to reimburse the carrier for
economic damages paid to her in Vermont.  Given the carrier's view, people
in defendant's position would have little or no incentive to pursue third-
party lawsuits, knowing that, in cases like this, any recovery would go
first to legal fees and the workers' compensation carrier.
     Consequently, a literal application of { 624(e) to the legal landscape
in New York undercuts the very policies { 624 was designed to implement.
Workers' compensation law provides injured workers with expeditious and
certain payments for economic losses without proof of fault and employers
with limited liability.  Kittell v. Vermont Weatherboard Inc., 138 Vt. 439,
441,