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No Double Recovery: Don’t Accept “One Third Each”

When seeking reimbursement on behalf of a carrier or employer under New York Workers’ Compensation Law Section 29 (“Section 29”) or N.J.S.A. 34:15-40 (“Section 40”) a particular scenario arises all too frequently: one of the other parties asking that the reimbursement right be reduced by equal measure against all parties; the “one-third, one-thirds one-third” offer. The carrier does not have to accept this reimbursement offer and in many cases should not!

At the most simplified level there are three prospective recipients of any settlement value in a civil case that involves a Section 29 or Section 40 lien: the claimant/petitioner, the third-party plaintiff’s attorney and the employer or workers’ compensation carrier. In this basic three-party structure, an even split of the settlement proceeds in to thirds would seem to make logical sense. In fact, the third-party plaintiff’s attorney will frequently assert that this is the “norm,” and that this is how “every case” ultimately resolves. They will also usually proffer some rationale as to why the Section 29 or Section 40 lien should be compromised, typically regarding issues with liability and allegedly poor chances of success at trial. Essentially, their argument is that some reimbursement is better than no reimbursement, and therefore the lien should be compromised to induce the claimant/petitioner’s consent to settlement. When it comes to such arguments, however, it is vital to keep in mind the legislative intent behind Section 29 and Section 40 and the protection the courts give that intent.

With regard to Section 29, the Supreme Court of New York, Appellate Division, Third Department has interpreted the statute’s purpose thusly: “In large measure, Workers’ Compensation Law § 29 is designed to prevent an injury victim from receiving a double recovery.” Raponi v. Orange & Rockland Utils., 221 A.D.2d 786, 787 (N.Y. App. Div. 3d Dep’t 1995) [citing Dietrick v Kemper Ins. Co. [American Motorists Ins. Co.], 76 N.Y.2d 248, 252, 254 (N.Y. 1990)]. In the case Scheer v. New York State Ins. Fund, a claimant sought to argue that the workers’ compensation lien should be reduced based on “equitable considerations” such as the far lower settlement value of $600,000.00, when counsel’s initial estimate was $2,500,000.00, and the fact that only 22% of the settlement proceeds included elements of damages for which the claimant had received workers’ compensation. Scheer v. New York State Ins. Fund, 22 Misc. 239, 241 (N.Y. Sup. Ct. 2008).

In interpreting Section 29, the Court stated that the claimant had no entitlement to the reduction of the carrier’s lien, which was to be enforced against “the proceeds of any recovery by the claimant to the extent of compensation and medical expenses awarded.” Id. at 246 [citing Matter of Granger v. Urda, 44 N.Y.2d 91, 96 (N.Y. 1978)]. More specifically, the Court held that, “the workers’ compensation carrier is granted a lien against the full amount of any recovery or settlement in any third-party action, without reduction of that lien based on the kinds of equitable considerations cited by petitioner.” Id. at 248.

Section 40 was likewise enacted as a prohibition against double recovery. In the case Frazier v. N.J. Mfrs. Ins. Co., the Supreme Court of New Jersey stated that the legislature had amended the Workers’ Compensation Act by adding N.J.S.A. 34:15-40 to “overcome the inequity of double recovery.” Frazier v. N.J. Mfrs. Ins. Co., 142 N.J. 590, 597 (N.J. 1995). In that case, the petitioner argued that Section 40 should not be applicable to legal malpractice claims stemming from a third-party action, because the legal malpractice recovery, together with workers’ compensation, did not provide full compensation for his injuries. Id. at 602. The Court disagreed, noting that there was no “full compensation” rule in Section 40. Id.

In fact, Section 40 was given broad effect in Frazier through the Court’s holding that, “any proceeds, whether recovered from the third-person tortfeasor or from a functionally equivalent source — uninsured motorist insurance proceeds or legal malpractice proceeds — are subject to section 40 liens, and the same ‘no double recovery’ rule applies for both recoveries. Recoveries that are not directly from the tortfeasor are subject to a lien even when the employee is not fully compensated.” Id. at 605.

When a third-party plaintiff’s attorney demands a lien compromise it is important to keep in mind that the law is on your side. A waiver of any portion of the lien results in the exact type of double recovery both Section 29 and Section 40 seek to prevent. If the third-party settlement proceeds exceed the amount paid in workers’ compensation benefits, you are entitled to reimbursement in full so long as the attorney’s fee and costs of litigation (Section 29) or expenses of suit (Section 40) are satisfied. The third-party plaintiff’s attorney and the claimant/petitioner are bound by the same “some money is better than no money” rationale they frequently seek to invoke. In essence, the compromise of a Section 29 or Section 40 lien is a game of who blinks first. Of course, some compromise is necessary to induce the claimant/petitioner’s consent to settlement, but don’t settle for 1/3rd, 1/3rd, 1/3rd!

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