Source: https://loisllc.com/new-york/third-party-recoveries-and-workers-compensation-in-new-york/
Timestamp: 2019-04-24 16:09:56+00:00

Document:
Third party recoveries and workers’ compensation in New York.
If the claimant recovers at law, the carrier/employer has the right to reimbursement, subject to certain limitations.
The Employer/Carrier has the right to recover compensation benefits issued against the actual tortfeasor.
the employee has been notified in writing (certified mail or personal service) and 30 days has elapsed. WCL § 29(1).
“Third party” refers to the “negligent third party” or the civil action itself. In common usage, in the workers’ compensation context there are always two parties: the employer and the injured worker. the “third party” (the negligent party – not the employer) is how practitioners refer to the “not comp” action.
A permanent total disability award, scheduled loss of use award, or death benefits (dependency benefits) are for a “fixed’ amount of compensation and the present day values of those awards is readily ascertainable. (For more on these types of awards, see Chapter 9 of my book.
New York Workers’ Compensation Law allows for “reduced earnings benefits” and permanent partial disability benefits. The value of those benefits may fluctuate (and even cease completely) during the lifetime of the claimant. Reducing those benefits to a “present day value” is not as easily ascertainable as in the case of a death, total disability, or scheduled loss of use benefit.
Limitation on reimbursement: motor vehicle claims.
Section 29(1-a) states that the employer’s reimbursement right does not extend to any recovery the claimant may have made under § 5104(a) of the insurance law. That insurance law section (§ 5104(a)) states that a person injured in a motor-vehicle accident is not entitled to recovery for “non-economic loss” or for “basic economic loss” except in certain cases (where there has been “serious injury”).
Section 5102 of the New York State Insurance Law defines “Basic Economic Loss as up to $50,000 in medical expenses, lost wages and other reasonable and necessary expenses (up to $25 per day) arising from a motor vehicle accident. Because these expenses are paid by the injured party’s own insurer, they are not recoverable in a personal injury lawsuit. As a result, a person injured in car accident who incurs less than $50,000 in expenses cannot proceed with a personal injury lawsuit unless he or she has otherwise suffered a serious injury.
The prohibition against allowing the comp carrier to get reimbursment from this first $50,000 in “first party” benefits makes sense in a roundabout way: an employee who is injured (while working) in a car accident collects $50,000 in lost wages and medical expenses from her own insurance policy, so granting the compensation carrier the right to reimbursement from that money is kind of like letting the comp carrier get away with having the claimant self-fund the first $50,000 of her own workers’ compensation losses.
Limitation on reimbursement: the Kelly decision.
The decision in Kelly v. State Insurance Fund is simple: it stands for the proposiiton that the carrier’s reimbursement is reduced as a percentage of what the claimant expended on securing the third-party recovery. It does not matter if, as in the Kelly case, the claimant recovers $315,000 and the workers’ compnesation carrier had paid out only $54,127.56 in benefits. The $54,127.56 was reduced by the percentage of the claimant’s litigations expenses (“reasonable and necessary expenditures, including attorney’s fees”, see WCL § 29) which was determined to be 34.27% of the total recovery (for how this percentage is calculated, read on).
The Court in Kelly ruled that the carrier had also received a second benefit from the claimant’s recovery against the third-party: not having to pay an ongoing dependency award (remember that dependency awards can be estimated by taking the claimant’s life expectancy in weeks and multiplying it by the weekly award). The Kelly Court ruled that the carrier’s lien should not only be reduced by the amount paid by the claimant to obtain her award (attorneys fees and “reasonable” costs) but also by the amount of future payments avoided by the carrier.
Example: Applying Kelly math to see how the carrier’s reimbursement is reduced.
The attorney’s fee paid (either dollar figure or percentage).
Amount paid by the compensation carrier for medical and indemnity benefits.
Present value of future benefits due to the claimant.
Total of disbursments made to get the settlement: $10,000.
Amount paid by the compensation carrier for medical and indemnity benefits: $90,0000.
Present value of future benefits due to the claimant: Presume nothing.
$130,000 attorney's fee + $10,000 in costs = $140,000 paid to get the settlement.
Under this example, the carrier’s lien would be reduced by 35% (percentage costs of recovery).
$90,000 lien * .35% = $31,500. So, the carrier would recover $58,500.
$400,000 - costs and fee $140,000 - carrier's lien = $201,500 net to claimant.
What about where the carrier’s obligation to pay continues, but is reduced or extinguished by the amount of the third party settlement? (This was the case in Kelly).
In that circumstance, the carrier didn’t just get repaid for benefits already issued – but got to defer payment on future benefits which would have been paid out if the third party had not settled. In that case, the carrier’s second benefit is reduced too.
Presume that the claimant would be entitled to a fixed benefit for either a scheduled loss of use, permanent disability or a dependency benefit (the claimant is Kelly was entitled to a dependency benefit.) In that case, the carrier is getting the second benefit – not having to pay all those weeks of compensation that the claimant would have had coming to her.
For example, if the claimant was getting a benefit of $300 a week, it would take 671.66 weeks or approximately 13 years to use up the remaining “net settlement”” (see above example, where the claimant “netted” $201,500, and dividing that figure by the $300 weekly rate to arrive at a number of weeks). In such a case, the future benefit is reduced to present value. Assume for the sake of this example that the present value of $201,500 is $136,188. Then, the real amount that the carrier recovered is the total amount already paid in indemnity and medical benefits plus the current value of the future benefits avoided ($136,188).
This benefit ($90,000 + $136,188 = $226,188) would be reduced by the percentage cost of procurement (35%) and then subtracted from the carrier’s lien for benefits already paid ($90,000). In our example, the $90,000 lien (current value of medical and indemnity alreayd paid) would be reduced by the future benefit (payment avoidance) so the carrier’s net lien is reduced by $79,166 to just $10,834.
In this example, where the claimant recovered $400,000 in a third party claim, where the carrier expended $90,000 in medical and indemnity benefits during the case, and has an ongoing obligation ot pay benefits, the impact of the third-party case is that the carrier recovers $10,834 from the third party action and then takes a break from having to pay anything until 13 years passes.
As is shown above, the amount the workers’ compensation carrier pays is the function of two things: the amount already paid at the time of settlement (medical and indemnity benefits) plus the future payments avoided. In our example above, this “total” amount is then multiplied by the “equitable share” percentage (the costs of procuring the recovery divided by the recovery) to arrive at the new, total (lower) lien reimbursmenet (but remember, the carrier then gets a holiday until the proceeds are exhausted).
When the amount already paid is much smaller than the future benefits avoided, the carrier may have to pay “fresh money” to the claimant as its equitable share for the recovery.
Here is an example where “fresh money” would have to be paid, using the same settlement in our example above, but reducing the already-incurred medical and indemnity component (the present lien) to show how fresh money would be payable.
Amount paid by the compensation carrier for medical and indemnity benefits: $20,0000. Note bene: this is the only figure we will change for this “fresh money example” versus our prior example, above.
Present value of future benefits due to the claimant: $138,188.
$20,000 lien + $138,188 * .35% = $55,365.80. This would be subtracted from what the carrier has already paid to get to the net lien: $20,000 – $55,365 = $35,365 in fresh money moving to the claimant.
$400,000 - costs and fee $140,000 - carrier's lien (add $35,365) = $236,865 net to claimant.
Permanent partial disability and reduced earnings awards: Burns v Varriale, 9 N.Y.3d 207 (2007).
In Burns the Court of Appeals reviewed a case in which the claimant was receiving “reduced earnings” benefits of $400 per week. This benefit represented the difference between the claimant’s pre-injury and post-injury wage (after his condeition had reached a state of partial permanent disability.) This case is interesting because under the Kelly calculations, taking into the account the “future exposures” avoided by the workers’ compensation carrier by the claimant, the claimant would have been due fresh money from the compensation carrier.
The compensation carrier argued that the future benefits was essentially unknowable – that the reduced earning benefit would change during periods of higher and perhaps lesser earnings. Therefore, the compensation carrier (Travelers) argued that it was unfair for the claimant to get the benefit of the carrier’s contribution for benefits which may never have been realized by the claimant.
“if a claimant does not receive benefits for death, total disability or schedule loss of use, the carrier’s future benefit cannot be quatified by actuarial or other means.” Burns v Varriale, 9 N.Y.3d 207 at 146 (2007), citing Matter of McKee v. Sith Independnence Power Partners, 281 AD2d 891 (4th Dep’t 2001) and Matter of Briggs v. Kansas Fire & Mar. Ins. Co, 121 AD2d 810, 812 (3d Dep’t 1986).
Future medicals: Bissell v. Town of Amherst, 18 N.Y.3d 697 (3rd Dept. 2012).
In Bissell the claimant received a third-party award that included an amount awarded by a jury for “future medical expenses” ($4,260,000). Under a Kelly calculation, the carrier would have had to pay $1,399.734 in “fresh money” representing its equitable portion of the fees and costs necessary to obtain the verdict that would ultimately allow the compensation carrier to avoid those future medical expenses.
Instead, the compensation carrier offered to pay its equitable portion of the cost when Bissell actually incurred each medical expense. The Bissell Court expressly agreed with this approach.
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