A Closer Look at Third-Party Actions and Disallowance of Indemnity Benefits Under Workers’ Compensation Law Section 29
Knowledge

A Closer Look at Third-Party Actions and Disallowance of Indemnity Benefits Under Workers’ Compensation Law Section 29

January 11, 2022

Key Takeaways

  • Under Workers’ Compensation Law Section 29(1), the claimant must obtain written consent of  the carrier to settle third-party action or obtain a compromise order from the court.

  • The claimant’s failure to obtain the carrier’s consent or compromise order can lead to discontinuance of workers’ compensation benefits.

  • The carrier’s mere awareness that the claimant settled the third-party action does not constitute a satisfaction of  the claimant’s requirement to obtain the carrier’s consent.

 

A workers’ compensation claimant is legally entitled to collect compensation for a work-related injury and pursue a personal injury action, also known as a third-party action. However, the claimant is barred from receiving a double recovery from the third-party action and workers’ compensation carrier. Thus, under Workers’ Compensation Law Section 29(1), the carrier is granted the opportunity to maintain a lien against monetary relief the claimant receives from a third-party action and recover two-thirds of the paid indemnity compensation and medical expense on the workers’ compensation claim. In the event the claimant chooses to settle this third-party action, the claimant is under the obligation to notify and receive consent from the carrier prior to settling the third-party action. Should the claimant settle in the absence of consent, the carrier must maintain disallowance of workers’ compensation benefits. It is vital to note that the claimant cannot discontinue their third-party action without approval from the carrier.

Recently, the Third Department Appellate Division issued a decision on the pending Matter of DeGennaro, in which the claimant sustained an injury to his back and knees as he was struck by a vehicle in the course of his employment. The insurance carrier provided insurance to the vehicle in which the claimant was struck. The claimant was receiving indemnity awards from the workers’ compensation carrier and pursued a third-party action against the insurance carrier. The carrier advised the claimant that the workers’ compensation carrier had a lien against the proceeds. As a result of that third-party action, the claimant entered into a settlement and received $1.6 million. The carrier was permitted to suspend indemnity awards, and the claimant was directed to produce the third-party closing statement and proof of the carrier’s consent to the third-party settlement.

The claimant issued a check to the carrier from the settlement proceeds. However, due to an overpayment, the claimant initiated an action against the carrier seeking a reimbursement. In its response, the carrier also denied consent of the third-party action. The carrier and claimant entered into a stipulation to resolve the matter. The workers’ compensation law judge found the carrier consented to the third-party settlement as it actively participated in the settlement negotiation process and received a direct benefit from the settlement as it received two-thirds of the lien. However, on appeal, the Workers’ Compensation Board reversed the workers’ compensation law judge’s decision and found the claimant failed to obtain the carrier’s consent and thus the claimant was barred from receiving further benefits as per workers’ compensation law Section 29(5).

The Third Department held that a claimant may settle its third-party action and continue to receive indemnity benefits from the workers’ compensation carrier, but the claimant is required to obtain written consent of the carrier to settle such third-party actions or has a comprise order from the court, also known as a Nunc Pro Tunc order, approving the settlement. The court held that the requirement of consent shall not be waived even if the carrier’s lien is satisfied when the carrier did not actively participate in the settlement negotiation process. Matter of DeGennaro v. H. Sands & Co., 2021-05376 (N.Y. Sup. Ct. Oct. 7, 2021).

In DeGennaro, the Third Department held that although the carrier was aware that the claimant settled his third-party action and the claimant satisfied the lien existing at the time the third-party action settled, the claimant’s counsel conceded that the carrier’s written consent was not obtained. It was held that proof of active participation was not presented, and solely on the basis that the carriers’ lien was satisfied did not excuse the claimant from his obligation to secure consent from the carrier. The court also noted the burden of proof that the carrier consented to the third-party action remains with the claimant.

Should the claimant fail to secure the carrier’s consent, a Nunc Pro Tunc order will satisfy the requirement of consent. A Nunc Pro Tunc order should be sought within three months of the third-party settlement. However, the Third Department has held in the Matter of Denzil Labbon v. Thomas J. Brown “a judicial order may be obtained, Nunc Pro Tunc approving a previously agreed-upon settlement, even where the applications for the approval is sought more than three months after the date of settlement, provided that the employee can establish that (1) the amount of the settlement is reasonable, (2) the delay in applying for a judicial order of approval was not caused by the employer’s fault or neglect and that (3) the insured carrier was not prejudiced by the delay.” Labbon v. Brown, 125 A.d.3d 612, 3 N.Y.S.3d 110, 111 2015 N.Y. Slip Op. In response to such an argument, the carrier should continue to maintain disallowance of benefits, specifically when the claimant’s negligence caused the delay in seeking judicial approval for the Nunc Pro Tunc order.

Timing is essential when the claimant has settled a third-party action, and thus a request for further action should be filed with the Workers’ Compensation Board to argue disallowance of benefits. We strongly recommend our clients to advise Goldberg Segalla of all communication you have regarding a third-party settlement with a Pro Se claimant or with counsel of a represented claimant immediately. We will continue to communicate with opposing counsel on all claims in which the claimant has a third-party action and continue to work with all our clients to keep them informed on the third-party settlements and their rights.

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