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Risk Transfer: The Carrier’s Overlooked and Underutilized Secret Weapon

Every workers’ compensation defense attorney worth their salt is well familiar with the standard tactics for pushing claims toward resolution and mitigating exposure. There are a finite number of tools at the carrier’s disposal:

  • denying claims and raising defenses;
  • conducting a proper investigation (site inspections, security camera video, witness statements, background checks, employee personnel files, social media usage reports, ISO claim searches, police reports and FOIL requests, etc.) and surveillance of the injured worker;
  • obtaining independent medical examinations (“IME”) and functional capacity evaluations (“FCE”) for issues such as need for treatment and medical necessity, temporary disability, work capacity and restrictions, permanent disability, etc.;
  • raising fraud;
  • litigating claims (injured worker and witness testimony, depositions of doctors, appeals and summations, discovery and disclosure including subpoenas and interrogatories, etc.); and
  • pushing prompt settlement to cut off ongoing exposure.

However, there is one area of insurance defense that a startling number of trial attorneys demonstrate a lack of familiarity with: risk transfer.

What is Risk Transfer?

The concept of risk transfer refers to the idea that if someone else can (or should) be blamed for the petitioner/claimant’s injuries, fundamental fairness dictates that the carrier’s liability for payment of workers’ compensation benefits should be passed on to such other person or entity. The workers’ compensation carrier has several metrics for measuring the success of defense efforts, including the time from opening to closure and keeping total costs under claim reserves. The “30,000-foot view,” however, includes the costs and expenses that were transferred or shared with another party. From a commonsense perspective, the end-of-the-day “balance sheet” for the carrier is every bit as important as any other metric.

For instance, assume that the carrier successfully litigates a claim and is able to settle for $30,000. Assume that, in a different claim, the carrier is able to settle a claim for $90,000 but is later able to recover two-thirds ($60,000) from a third-party settlement or judgment. The resolution of the former claim is seemingly more favorable, however from the perspective of overall exposure, the latter claim is just as favorable. This is why a thorough and effective pursuit of risk transfer is every bit as vital and essential as any of the other foregoing defense tactics.

Ways of Pursuing Risk Transfer

The most common method of risk transfer is the assertion of a lien on any settlement or judgment obtained by the petitioner/claimant in a civil action against a third party. Both New York Workers’ Compensation Law Section 29 (“Section 29”) and New Jersey Statute 34:15-40 (Section 40) provide for this right. Oftentimes, enforcing a lien is viewed as a simplistic, almost academic exercise: the petitioner/claimant is settling their third-party case, and as the workers’ compensation carrier we are permitted a right of recovery. This viewpoint fails to account for the necessity of properly perfecting that reimbursement right and maximizing its impact on the underlying workers’ compensation claim.

While New York’s Section 29 is by and large self-executing, Section 40 in New Jersey requires affirmative action on the part of the carrier to truly perfect the right of reimbursement. Most carriers or defense firms will serve a Section 40 lien notice on the petitioner’s workers’ compensation attorney or the petitioner’s third-party civil counsel and assume that they have properly exercised their rights under Section 40. However, subsection (d) of Section 40 actually requires service of a lien notice via registered mail on the liable third parties themselves or their attorneys. The serving of such notice gives the Section 40 lien priority. Before paying anything to the petitioner, the third parties are required to inquire as to the total extent of the Section 40 lien as well as the petitioner’s third-party attorney’s fee and “expenses of suit.” Thereafter, the third parties are obligated to pay the Section 40 lien before issuing dollar one to the petitioner. This serves as powerful leverage in negotiating a favorable and proper lien reimbursement, as third-party attorneys will often insist on “1/3rd, 1/3rd, 1/3rd” for each party. There is no rule requiring an even split of the settlement or judgment proceeds in either New York or New Jersey, and the carrier should never consent to such a structure without first demanding full reimbursement.

The potential impact of a lien extends beyond just the concept of obtaining a reimbursement, however. In many cases, the Section 40 or Section 29 lien can be used to leverage a “global settlement” encompassing an ongoing workers’ compensation claim. For instance, if the petitioner/claimant is classified with a permanent disability, they may be unmotivated to settle given the weekly benefit payments and the fact that medical treatment remains open. However, if there is a substantial Section 40 or Section 29 lien, the prospect of having this money go into their pocket immediately can serve as strong motivation for the petitioner/claimant to close out their workers’ compensation claim. The total value of a permanency award may not be significant enough to motivate the petitioner/claimant to accept a lump-sum settlement; however, the workers’ compensation lien could be substantial. For instance, the total value of the permanency award could be $25,000, however the third-party settlement could be $150,000 with a $50,000 workers’ compensation lien. The prospect of walking away from the third-party settlement with an extra $50,000 if the lien is waived can serve as strong motivation for a petitioner/claimant to finally agree to settle the workers’ compensation claim. This effectively ends the carrier’s exposure without paying any additional money in to the case.

Beyond this, Section 40 and Section 29 both provide the workers’ compensation carrier a statutory right of subrogation. In New York, six months after the awarding of compensation or one year after the date of loss (whichever comes first), the carrier is permitted to serve the claimant with a Section 29(2) notice of intent to file a subrogated civil action thirty days after the notice if the claimant does not file the suit themselves. In New Jersey, the Section 40(f) notice can be served one year after the date of loss and, if no suit is filed by the petitioner within 10 days of the notice, the carrier is permitted to subrogate the claim. The carrier’s subrogation rights can be weaponized for pushing timely closure. New Jersey has a two-year personal injury statute of limitations, and New York has a three-year personal injury statute of limitations. This means that, conceivably, the carrier could resolve the workers’ compensation claim within six months but end up waiting another year, possibly even two years, before they receive their reimbursement. Serving the Section 40(f) or Section 29(2) notice when the claim is first eligible may, at the very least, motivate the petitioner/claimant to retain counsel and file their own claim. However, if they fail to do so the carrier can file a complaint against the third party and secure a settlement immediately if they so choose.

In some instances, the carrier may have rights of recovery that the petitioner/claimant does not possess. For instance, the 2018 New Jersey Appellate Division case New Jersey Transit Corp. v. Sanchez (457 N.J. Super. 98) held that the carrier’s right of subrogation under Section 40 was separate and distinct from the Automobile Insurance Cost Reduction Act. Where the petitioner’s own claim would have been barred by the so-called “verbal threshold” in New Jersey, the carrier was still permitted to prosecute their subrogation action under Section 40. Similarly, the right to intercompany loss transfer under New York’s Section 29(1-a) and Insurance Law Section 5105 is a right of recovery directly against the liable third-party defense carrier that the claimant does not possess. When a motor vehicle accident case qualifies for intercompany loss transfer (if any vehicle in the accident either weighs over 6,500 pounds unladen or is used principally “for hire” for the transportation of persons or property), the workers’ compensation carrier can file for intercompany loss transfer to seek reimbursement from the third-party directly.

In New York motor vehicle accident cases, oftentimes the third-party attorney will assert that there is an inviolable, blanket, non-negotiable $50,000 “carve out” to the workers’ compensation carrier’s Section 29 lien based on New York’s “No-Fault Law” (Article 51 of the New York Insurance Law). This is not the case, however, and it should never be conceded without proper investigation. Accidents outside the State of New York are not subject to the “carve out,” even if it is a New York workers’ compensation claim. The accident must arise from the “use or operation of a motor vehicle” in the State of New York. Therefore, when the facts do not qualify as “use or operation” (using the motor vehicle as a motor vehicle) or the vehicle at issue is not a motor vehicle for the purposes of the “No-Fault Law” (motorcycles, caterpillar-type equipment on construction sites, etc.), there is no “carve out.” Amounts that are not paid “in lieu of first-party benefits” are subject to lien rights under Section 29. For instance, indemnity paid in excess of $2,000 per month or indemnity paid more than three years after the date of loss are both subject to Section 29 whether or not $50,000 has been paid. Moreover, the workers’ compensation carrier is not solely responsible for payment of the $50,000 before there are Section 29 lien rights; the first $50,000 in “basic economic loss” is from all sources. If the claimant is receiving any additional wage replacement benefits from their employer or their own automobile liability carrier, or if their automobile liability carrier pays for treatment that may have been deemed noncompensable under the workers’ compensation claim, these amounts are added to the workers’ compensation payments to determine whether $50,000 has been paid in first-party benefits.

How LOIS Can Help You Assess and Pursue Risk Transfer

Risk transfer is one of the most powerful yet underutilized tools in the workers’ compensation carrier’s tool belt. At LOIS, we commence aggressive investigation into the feasibility of pursuing risk transfer immediately. Timely and thorough discovery is essential to preserve and protect all statutory lien, reimbursement, future credit/offset, subrogation and loss transfer rights. By assessing the facts of the underlying accident, we determine whether there is another party potentially responsible for the petitioner/claimant’s injuries at file intake. We take special notice of all deadlines, including when the claim is first eligible for filing a subrogated civil action and, thereafter, we can file a civil complaint on the carrier’s behalf. We assert the carrier’s statutory demand for reimbursement via continuous service of lien notices pursuant to Section 40 and Section 29 and close monitoring of the third-party action case dockets. When a claim is eligible for intercompany loss transfer, we serve the third-party carrier with the Intercompany Reimbursement Notification immediately to commence the process and can take the matter to intercompany arbitration if a favorable settlement is not offered.

LOIS handles all aspects of reducing exposure in workers’ compensation claims, including pushing risk transfer from day one. With our “cradle-to-grave” approach to handling workers’ compensation claims we develop an intimate familiarity with the facts of the underlying workers’ compensation claim, which serves as a powerful foundation in assessing and pushing risk transfer in each and every claim we defend. Lois LLC has a dedicated civil practice team to handle all lien reimbursement, subrogation, “global settlement,” and intercompany loss transfer issues as part of our comprehensive defense efforts.

The time to assess for risk transfer is now!

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The “New York Risk Transfer Handbook" is "an effort to present to you, the curious claims professional, supervisor, manager, risk transfer or recovery specialist, or even fellow lawyer, just how subrogation makes sense in the context of your claims.”

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Why LOIS Has a Dedicated Civil Litigation Practice

LOIS has a dedicated Civil Litigation Practice to serve general liability, premises liability, automobile liability insurance carriers and third party administrators in reimbursement claims under New York WCL § 29 and New Jersey’s Section 40 (N.J.S.A. 34:15-40). Our attorneys also regularly represent these clients’ insureds in defense of personal injury matters filed in all counties in Metropolitan New York, all counties in New Jersey and in the federal courts.

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