On October 1, 2009, the Third Department affirmed that Owen Burns’ former employer, the Town of Colonie, remained responsible to provide workers’ compensation benefits to him for the reduction in earnings caused by his work related motor vehicle accident. The issue was whether or not Mr. Burns had voluntarily limited his post injury earnings. If he had voluntarily limited his earnings, his right to collect further workers’ compensation benefits may have been extinguished, despite his permanent disability from that accident.
The decision rendered by the Third Department represented the culmination of a lengthy legal battle with his former employer over its contribution towards the expenses incurred by Mr. Burns in bringing a personal injury action that had also arisen out of this work related accident. This action had resulted not only in a monetary settlement to Mr. Burns, but also in a substantial benefit to his employer, which had recovered its workers’ compensation lien from the settlement proceeds, and received a credit for the net amount of Mr. Burns’ recovery, as well. The Third Department confirmed that although his employer retained a credit, it recognized the costs incurred by Mr. Burns in bringing the law suit which resulted in that credit. It was held that Mr. Burn’s employer remained responsible for its proportionate share of those costs upon the continuing workers’ compensation benefits as they accrued.
Section 29 of the New York State Workers’ Compensation Law governs the rights of employees and insurance carriers with respect to personal injury actions arising out of injuries sustained in a work accident which are also caused by third party tortfeasors. If an employee is injured or killed through the fault of someone who is not a coworker, he need not choose between filing a claim for compensation and a personal injury action, but may rather collect compensation and pursue a third party action concurrently. However, in such instance, the compensation carrier shall have a lien on the proceeds of any third party recovery, whether by judgment or settlement, in the amount of the total compensation awarded or estimated and the expenses for medical treatment, after the deduction of reasonable and necessary expenditures including attorneys fees incurred in effecting such recovery. Exceptions to this lien include motor vehicle accidents within New York State which are subject to no fault per Insurance Law 5100 et seq. In such situations, the first 3 years of indemnity benefits and first $50,000 of combined medical and indemnity is deemed to be First Party Benefits rather than Third party benefits. Any excess beyond that amount is designated as Third Party benefits and subject to lien and credit.
Prior to the 1975 amendment to section 29, the injured worker bore the entire cost of the litigation while the compensation carrier reaped a significant benefit at the claimant’s expense. The compensation carrier was permitted to recover its full lien while the claimant had borne the full expense of the litigation, including court costs and attorney fees, from his share of the recovery. The amendment of 1975 recognized that the compensation carrier should be made to assume its proportionate share of the costs and expenses incurred in recovering its lien amount. Kelly v. State Insurance Fund, 60 N.Y.2d 131 (1983), set the standard for the apportionment of such expenses. In Kelly, the Court of Appeals noted that when a claimant recovers damages in a third party action, the compensation carrier’s equitable share of the costs, including attorney fees, may be apportioned by noting the total benefit derived by the carrier as the result of the recovery, method known simply as the “Kelly Calculation”.
In Kelly, the claimant was the dependent widow of a deceased worker killed on the job. In calculating the benefit received by the New York State Insurance Fund, the responsible workers’ compensation carrier, the Court of Appeals noted that the Fund was not only recovering its lien for the amount of benefits already paid to the widow, but also that the credit caused by the third party net recovery virtually ensured that the carrier’s legal requirement to make payments to the widow for the rest of her lifetime would be exhausted. Thus the carrier’s proportionate share of costs was assessed as a percentage of the total amount of past benefits spent (both indemnity and medical) in addition to the present value of future benefits that it would no longer have to pay as the result of that recovery. The court in Kelly recognized that the compensation carrier stood to gain from the third party recovery in two distinct ways, both by recouping past compensation paid as well as by being relieved of it future obligation to pay compensation. In fact, based upon the decision in Kelly, if the amount of the lien was less than the equitable share of the costs, the carrier was made to pay that excess to the claimant. Thus, as the share of the costs actually exceeded the lien amount, the carrier had to make a payment to the widow for its share of the costs.
Kelly remained the standard for more than 23 years until Owen Burns was injured while working. In Burns v. Varriale, 9 N.Y.3d 207 (2007), the Court of Appeals, determined that in order for the carrier to be required to pay its proportionate share premised upon the present value of future compensation due, such amount needed to be “easily quantified” or “reasonably probable” rather than speculative. In Kelly, the claimant was the dependent widow of a deceased worker killed on the job. It was reasoned that her entitlement to benefits for the rest of her life or until remarriage could be quantified by applying life expectancy charts and mathematical probabilities of remarriage. However, unlike the deceased Mr. Kelly, Owen Burns had the potential to resume some type of work activity in the future based upon the fact that he suffered from a permanent, yet only partial, disability. This led the Court to determine that his future workers’ compensation benefit was speculative as a potential return to work could alter the amount of his benefits or even terminate them.
Thus, the Court determined that in the case of death, total disability or schedule loss, the resultant award was either a fixed amount, or an amount that could be reasonably forecast. The amount of the benefit would not fluctuate in the case of a death benefit or in a case involving total disability where there was no expectation of rejoining the work force. However, in the case of permanent partial disability there was substantial uncertainty as to weekly amounts that could fluctuate with actual reduced earnings. This could not be easily predicted because in the case of a permanent partial disability, the claimant must demonstrate that his loss of earnings is due to his “disability” and not due to “age, general economic factors or factors unrelated to the disability.”
Thus, in Burns, the Court decided that if the present value of the recovery cannot be ascertained at the time of the settlement, the carrier should be required to pay its equitable share of the costs incurred by the claimant in securing future compensation benefits. That does not, however, mean that the claimant must wait indefinitely for the carrier to pay its equitable share. A means to apportion the litigation costs as they accrue may be fashioned which would ensure that they are paid on an actual and non speculative basis. Thus, if the litigation expenses (including costs and fees) amounted to 1/3 of the total settlement, the carrier would receive its lien and also retain a credit for the amount of the claimant’s recovery. The carrier would also remain liable to pay 1/3 of all ongoing awards and medical expenses, while applying the other 2/3 toward the credit.
Of course, the lien reduction is part of the negotiation between the third party attorney and the workers’ compensation carrier in obtaining the carrier’s consent to the settlement amount. The compensation carrier must give consent to the settlement amount as it has a vested interest in the amount of the settlement which protects its lien and credit. Current problems exist wherein carriers will often withhold necessary consent and delay the third party settlement by asserting the speculative nature of the future payments in a partially disabled claimant. For this reason, the carrier will demand to pay its proportionate share of expenses based only upon compensation and expenses already incurred.
While the ruling in Burns v. Varriale suggests that the carrier should then assume responsibility for its share of costs for future awards as they become due, the carrier’s provide consent to the settlement only if they are also permitted to receive full and immediate credit for the amount of the third party proceeds, as had been the standard in Kelly, despite the fact that the future benefits were not considered in calculating the carrier’s contribution. This is prejudicial to the claimant if the carrier refuses to consent to the settlement unless it is permitted to assert the speculative nature of the benefits addressed in Burns, and to avoid paying the proportionate share of such speculative benefit as they become actual and fixed. The claimant could potentially apply to the Court for an order apportioning the litigation expenses on a prospective basis and would likely succeed as per the decision in Burns, but this also serves to hold ransom the third party proceeds pending such order.
On October 1, 2009, the Third Department determined that Owen Burns was, in fact, entitled to continuing payment of compensation benefits based upon the reduction in his earnings, as he had changed occupations and performed some work as an insurance investigator, due to his disability. Inasmuch as his employer’s contribution to the court costs and expenses which resulted from his third party lawsuit was limited to the actual payments made and as it does not take into consideration any future compensation benefit as speculative, the employer remains responsible to pay its share of the court costs when making payment for such reduction in earnings.
Certainly, the Court of Appeals’ reinterpretation of the compensation carrier’s lien rights has substantially changed the way that personal injury attorneys and their workers’ compensation counterparts address the costs of litigation in a third party action. The impact of the Burns decision has resulted in the need for more communication between these groups of attorneys in order to fully protect the client’s interests, and an even more vigilant approach when resolving cases.
Les D. Jarmol is a partner at the law firm of Polsky, Shouldice & Rosen, P.C. He concentrates in the area of Workers’ Compensation Law, having represented injured workers, insurance carriers, uninsured employers and medical providers through all aspects of the system for the last 17 years.
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