Category Archives: Insurance

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.

Under the New York Workers’ Compensation Law, a worker injured by the negligence of another can collect workers’ compensation benefits and then recover in a civil suit against the actual tortfeasor. WCL § 29. Under those circumstances, the insurance carrier that paid benefits has a lien on the proceeds of the third-party settlement “after the deduction of the reasonable and necessary expenditures, including attorney’s fees, incurred in effecting such recovery.” Id.The employee may ask the court for an order apportioning the “reasonable and necessary expenditures.”

The Employer/Carrier has the right to recover compensation benefits issued against the actual tortfeasor.

The carrier paying workers’ compensation benefits has the right to sue the actual tortfeasor in court (subrogation). However, the employer/carrier can not bring this action unless

  • one year has passed from the accident or six months from the compensation award (whichever comes first); and
  • the employee has been notified in writing (certified mail or personal service) and 30 days has elapsed. WCL § 29(1).

First, some vocabulary.

Discussing subrogation rights in New York is a journey into a land of bizarre vocabulary. To begin, let’s review some key terms:

  • “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.

Figuring out the impact of a third-party settlement on a carrier’s exposure involves knowing the following facts:

  1. The settlement amount.
  2. Total of disbursments made to get the settlement (legal costs such as filing, expert witness fees, exhibits fees, etc.)
  3. The attorney’s fee paid (either dollar figure or percentage).
  4. Amount paid by the compensation carrier for medical and indemnity benefits.
  5. Present value of future benefits due to the claimant.

Then, the following formula can be applied:

(Carrier's lien amount) * (cost of collection percentage) = net lien recovery

To use easy, round numbers for an example:

  1. The settlement amount: $400,000.
  2. Total of disbursments made to get the settlement: $10,000.
  3. The attorney’s fee: 33% ($130,000)
  4. Amount paid by the compensation carrier for medical and indemnity benefits: $90,0000.
  5. Present value of future benefits due to the claimant: Presume nothing.

In this formula, the lien amount is the total value of the past medical and indemnity paid. Here it is, as a math formula:
$130,000 attorney's fee + $10,000 in costs = $140,000 paid to get the settlement.
$140,000 cost of collection / total settlement ($400,000) = 35% of total recovery
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.
After the carrier’s reimbursement, the formula for calculating the claimant’s net is:
$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.

The formula for this would be:
$Current lien -(($Current lien + $future benefit)* cost of recovery%)

“Fresh Money.”

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.

To use easy, round numbers for an example:

  1. The settlement amount: $400,000.
  2. Total of disbursments made to get the settlement: $10,000.
  3. The attorney’s fee: 33% ($130,000)
  4. 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.
  5. Present value of future benefits due to the claimant: $138,188.

In this formula, the lien amount is the total value of the past medical and indemnity paid. Here it is, as a math formula:
$130,000 attorney's fee + $10,000 in costs = $140,000 paid to get the settlement.
$140,000 cost of collection / total settlement ($400,000) = 35% of total recovery
Under this example, the carrier’s lien would be reduced by 35% (percentage costs of recovery).
$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.
After the carrier’s reimbursement, the formula for calculating the claimant’s net is:
$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.

The Court in Burns stated

“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).

The Court found it unfair to have the carrier pay an “equitable share” of attorneys fees and costs for future benefits whose future value could not be ascertained at the time of the third party recovery. Instead, the Court ruled that

“the trial court, in the exercise of its discretion, can fashion a means of apportioning litigation costs as they accrue and monitoring (e.g., by court order or stipulation of the parties) how the carrier’s payments to the claimant are made.”


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.

The Court in Bissell ruled that future medical expenses

“cannot reliably be calculated in a manner similar to [benefits for death, total disability or schedule loss of use] because it is impossible to reliably predict the future medical care the claimant will need, when the expenses from such care will accrue and how much it will cost when it does.”

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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Database 'Phase Out' Likely to Cause delays in Settling NJ Workers' Comp cases

As of March 3, 2009 the State of New Jersey ‘phased out’ half of the centralized computer system (the part maintained by the Department of Human Services) which tracks when a child-support payer is “behind” in their support obligations. Typically, when a case reaches settlement (either by section 20 or Order Approving Settlement) the court clerk will check the computer database to make sure that the claimant doesn’t owe past-due child support. If child support was owed, then the Order reflects that a certain portion of the settlement must be remitted to the appropriate county probation department to satisfy the support requirement.

Why are we reporting on this? Because it affects many claims: New Jersey workers’ compensation carriers made $3.5 Million in child support payments in 2008.

The State is phasing out half of the centralized computer system that the Workers’ Comp clerks have access to. Now, when the docket shows a child support arrearage, and the amount is in dispute, the petitioner’s attorney will have to resolve the dispute with the applicable county probation department.

A common dispute occurs when a claimant is due workers’ compensation benefits and a child support lien for past-due support has been placed on the court docket. The claimant (nearly always) asserts that “he paid that money, that is an old lien.” In the past, the Workers’ Comp clerk could directly access the child support ledger for that individual claimant – and the dispute could be resolved on the spot (and 99.9% of the time the claimant was behind in his payments and the docket was correct).
Now, the process will likely take longer, as claimant’s attorney will have to directly follow up with individual probation departments. The Administrative Office of the Courts will continue to maintain their child-support tracking system, but that system is notoriously out-of-date; in fact, the Office of the Courts’ “half” of the database could never be relied upon (by itself) for an accurate statement of current arrearages.

Expect claims with child-support liens to requires additional time to close, probably in the realm of several weeks.

Premises liability – real estate brokers

The Appellate Division considered in Reyes, et al. v. Egner, et al., etc .,(decided January 8, 2009) whether the lessors of a beach house had a duty to correct or warn about what are claimed to be dangerous conditions of their property, presenting hazards that allegedly were not reasonably apparent to a short-term tenant and her guests. The tenant’s elderly father, who had been vacationing at the house, was injured when he lost his balance while stepping onto an outside wooden platform. The platform was adjacent to the sliding glass door leading from the master bedroom to a rear deck. There was no handrail available to help plaintiff regain his balance, despite building code provisions that appear to mandate one. He and his wife thereafter filed a personal-injury action against the lessors and the real estate broker that had facilitated the two-week lease. Because the trial court erroneously required plaintiffs to prove that the lessors had actively or fraudulently concealed the allegedly dangerous conditions, the court vacated summary judgment entered in the lessors’ favor. The case involved a short-term rental, a context in which a lessee often has only a limited opportunity to discover hazardous conditions on the premises. However, the court affirmed the grant of summary judgment to the real estate broker, declining to extend liability to the broker in this short-term rental context beyond the limits expressed in Hopkins v. Fox Lazo Realtors, 132 N.J. 426 (1993).

Insurance carrier forced to disclose computerized claims-adjustment process

A federal judge in Camden has handed down what appears to be the first federal court ruling to allow an insured to inspect a carrier’s computerized claims-adjustment process. U.S. Magistrate Judge Joel Schneider directed Allstate to produce “the data, pricing and software Allstate used between 2000-2004 to adjust property losses in New Jersey,” along with passwords, keys and activation codes needed to access and use it. The disclosure was ordered in Opperman v. Allstate New Jersey Insurance Co., a suit by a couple over Allstate’s handling of their claim for damage to their home in a 2004 fire. The Oppermans allege Allstate omitted and underpriced many items and they could not find a reputable builder willing to do the repairs at Allstate’s price. The Oppermans sued Allstate on behalf of a class of similarly situated individuals making claims under Allstate policies. Although Allstate and its software licensing company opposed the inspection of its claims adjustment software, Judge Schneider said the plaintiffs’ need for access outweighs the potential harm from disclosure of trade secrets. It is unknown whether Allstate intends to appeal the ruling.

This case will no doubt be cited by plaintiffs’ attorneys in New Jersey (most likely with success) to gain access to claims processing software and related tools from insurance carriers.

Will the real 'UIM' defendant please stand up?

The New Jersey Supreme Court last Monday was asked to explode the legal fiction in UIM cases that the driver who caused the accident, not the plaintiff’s auto insurance carrier who declined coverage, is the defendant. The plaintiff in Bardis v. First Trenton Ins. Co., was injured in a parking lot collision with an underinsured driver. First Trenton paid PIP benefits, but declined UIM coverage. When the plaintiff sued, he requested a jury instruction that First Trenton be the named defendant, which was refused. The jury found that the other driver’s negligence did not cause the accident, thereby extinguishing the UIM claim. The Appellate Division affirmed and the Supreme Court subsequently agreed to review the case. It is the Plaintiff’s argument that had the jury known of the PIP benefit payments, it could have concluded that the carrier agreed the injuries were caused by the other driver’s negligence. At argument, the Justices seemed to be concerned about the possibility that if insurers feel the payment of PIP benefits might lead to subsequent UIM liability, they will have “second thoughts.” This suggests the Court may affirm the Appellate Division. However, given the Court’s general penchant for ruling against carriers, the decision could go either way. In any event, the decision will have important implications for auto carriers doing business in New Jersey, and we will provide and update upon receiving the opinion.

Statute of Limitations on 're-opened' claims

A settlement or judgment is not the end of a case in New Jersey (unless you close a case by way of Section 20 – a ‘lump sum dismissal.’ A claimant retains the right to ‘re-open’ their case if their condition worsens and the doctrine of res judicata does not apply.

The law (N.J.S.A. 34:15-27) states that the worker can ‘re-open’ their claim for “two years from the date compensation was last paid” which includes payments for medical benefits.

In the Pollock case, the claimant received ‘accelerated’ compensation payments, representing accrued benefits and interest (for late payment) on March 28, 2002. The carrier paid out all the benefits in one lump sum as ‘accrued’ based on a practice known as ‘filling in the gaps.’ In the ‘filling in the gaps’ practice, the payments due under an award (in this case, 203 weeks) are retroactively applied to periods of ‘accrued partial permanency benefits.’ In practice, this means that the carrier ‘looks back’ to periods where the claimant was not receiving temporary disability wage compensation and “fills in” those periods with permanency payments. This serves to decrease the number of payments due the claimant.

The claimant then filed a re-opener claim on September 7, 2004.

The carrier argued that the ‘accelerated’ “filling in the gaps” payments had reduced or shortened the statutory time period for re-opener. The carrier argued that the claimant had two years from the date the last payment was made (March 28, 2002) to re-open his case.

The claimant argued that the ‘filling in the gaps’ practice could not reduce/foreshorten his time for re-opener and that the time period for re-opener runs consecutively from the date of the award.

The Trial Judge and the Appellate Panel found that the period for re-opener should run consecutively from the date of award or settlement. This effectively ends the practice of ‘filing in the gaps.’

Case: Pollock v. Tri-State Motor Transit, Inc., 2008-WL-3539972 (App. Div. decided Aug. 15, 2008)(Judges Winkelstein & LeWinn, unpublished as of blog date). Link to: PDF version.

Statutes discussed: N.J.S.A. 34:15-27