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NY Appellate Decision Further Limits Plaintiffs’ Ability to Reduce or Extinguish Workers’ Comp Carrier Liens

June 21, 2012
Damon M. Gruber

In a highly anticipated decision, the Court of Appeals has further limited the ability of personal injury plaintiffs to reduce or extinguish a workers’ compensation carrier’s lien by estimating the future benefit to a workers’ compensation carrier of the cost of future medical bills that the carrier would no longer be liable to pay after a settlement of a related third-party action. The recently decided case is Bissell v. Town of Amherst, 18 N.Y. 3d 697 (2012).

In 1983 the Court of Appeals in Kelly v. State Insurance Fund, 60 N.Y.2d 131 (1983), that court introduced a formula through which claimants in workers’ compensation claims, who are also entitled to settlements in related third‑party actions, were able to reduce or extinguish a workers’ compensation carrier’s lien or in extreme cases actually receive “fresh” money from the carrier. This lien reduction was accomplished by requiring the carrier to contribute to the claimant’s cost of litigation by not only taking into account the carrier’s existing lien but also estimating the future benefit to the workers’ compensation carrier of the cost of the future medical and lost wage benefits that the carrier would no longer be liable to pay after the related third‑party action settled.

In Burns v. Varriale, 9 N.Y.3d 207 (2007), the Court of Appeals placed limits on Kelly by determining that the Kelly standard would only apply in situations involving a schedule loss of use, a permanent total disability, or death cases. In Bissell the claimant fell while working on a building owned by the Town of Amherst. He was eventually awarded a settlement of $23,400,000. The carrier was willing to reduce its lien by taking into account the cost of litigation that had accrued through the date of the settlement; however, a jury calculated the present value of future medical expenses to equal $4,259,536 and the claimant requested extinguishment of the carrier’s lien and also brought an application for the payment of fresh money in the amount of $1,395,734.80.

Despite a unanimous decision in the Fourth Department, the Court of Appeals granted leave to appeal and concluded that the future medical benefits that a carrier has been relieved of paying due to a claimant’s successful prosecution of a third-party action are so speculative that it would be improper to assess litigation costs against that benefit to the carrier.

In light of the court’s decision in Bissell, workers’ compensation carriers will continue to be able to recover sizable portions of their liens and also preserve their credit against the net settlement paid to the claimant which will be applied against the claimant’s future workers’ compensation benefits. However, the carrier will remain responsible for continuing to pay for approximately one-third of the claimant’s ongoing causally related medical expenses while asserting approximately two-thirds of the expense against the credit/net settlement. This will also result in claimants having to pay for approximately two-thirds of their ongoing medical expenses out of the proceeds of the third‑party settlement.

It is anticipated that this decision will result in an increase in global settlements with carriers agreeing to accept a reduced lien in exchange for claimants agreeing to give up their future rights to Workers’ Compensation benefits by negotiating full and final settlement under Workers’ Compensation Law §32.

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