When a workers’ compensation claimant pursues an additional lawsuit against a negligent third party for injuries arising out of the same accident, the workers’ compensation carrier’s exposure can be affected significantly. The claimant’s recovery from a third party can mitigate the carrier’s overall exposure, but only if the lien, offset, and consent rights provided in the Workers’ Compensation Law are preserved as soon as it is evident that the claimant is pursuing a third party action. New York law gives employers and carriers real leverage in these cases, if the requirements set forth by statute and case law are preserved diligently.
When Does a Third-Party Claim Coincide with a Workers’ Compensation Claim?
Workers’ compensation is a no-fault system where the injured worker receives medical care and partial wage replacement without proving fault. In return, the workers’ compensation benefits received by the injured worker are normally the exclusive remedy the injured worker has against the employer. Other entities outside the employer-employee relationship who are responsible for the injuries sustained are not protected from being sued by the Workers’ Compensation Law.
When a subcontractor, property owner, product manufacturer, motorist, or other third party caused or contributed to the worker’s injury, the worker can sue that third party in addition to filing a workers’ compensation claim. Construction sites are a common example where a general contractor, equipment manufacturer, and site owner may all share responsibility for an injury. For the employer and their carrier, that lawsuit against a third party is an opportunity to mitigate potential exposure, if handled correctly.
How Does the Section 29 Lien Protect the Carrier’s Recovery?
Workers’ Compensation Law Section 29 provides that when a worker recovers from a third party, the workers’ compensation carrier that paid benefits holds a statutory lien on some or all of the proceeds of that recovery. The protections afforded by Section 29 apply to both judgments and settlements alike. The amount of the lien is the combined costs of the medical and indemnity benefits paid to the claimant as part of the workers’ compensation claim. Naturally, the greater the expenses of the claim, the greater the carrier’s lien.
Accordingly, asserting the lien in writing early and often and preserving rights under WCL Section 29, as well as documenting every benefit paid, helps ensure that this valuable right is not lost.
Does the Workers’ Compensation Carrier Receive the Full Value of the Benefits It has Paid the Claimant?
Generally, the carrier does not receive the full amount it paid out . The justification for this is that, because the claimant’s attorney on the third action secured the settlement or judgement, the workers’ compensation carrier, who benefits from that recovery, should contribute to the legal fees and expenses associated with the third party action, rather than having those costs borne by the claimant alone. The seminal case in this area is Kelly v. State Insurance Fund 60 N.Y.2d 131, 468 N.Y.S.2d 850, 456 N.E.2d 791 (1983). In practice, the lien is reduced by the carrier’s proportionate share of the attorney’s fees and expenses that generated the recovery. This reduced amount is paid to the workers’ compensation carrier at the time the proceeds of the third party action are distributed.
Does the Third Party Recovery Benefit the Workers’ Compensation Carrier in any Other Ways?
A third-party recovery affects more than the existing lien. Subsequent cases, notably Burns v. Varriale, 9 N.Y.3d 207, 849 N.Y.S.2d 1 (2007) and Bissell v. Town of Amherst, 914 N.Y.S.2d 832, 79 A.D.3d 1638 (N.Y. App. Div. 2010) confirmed the workers’ compensation carrier’s right to a credit for the net third party recovery against future workers’ compensation benefits paid to the claimant. Pursuant to the Court’s decisions, this recovery is generally made at a “Burns” rate representing the attorneys fees and costs of the third party action. While the rate varies depending on the costs of litigation, it tends to be around 33%.
In such cases, if the workers’ compensation carrier is entitled to a credit for the net third party recovery and the “Burns” rate has been established to be 33%, it would only pay 33% of all medical and indemnity benefits, until the net third party recovery has been fully absorbed. At that point, it would be responsible for resuming full payment of all causally related benefits.
Due to the credit for the net third party recovery being taken slowly over time, it is vital that carriers make every effort to carefully track the amount of the remaining credit until it has been fully absorbed. Doing so can help avoid unnecessary hearings and potential penalties for improperly failing to pay the claimant or their medical providers.
Does The Workers’ Compensation Carrier Have a Say in the Settlement of a Third Party Action?
A workers’ compensation claimant cannot settle a third-party case without the carrier’s written approval. That consent requirement is powerful protection. If a claimant settles the third party action without approval, he or she can forfeit the right to all future workers’ compensation benefits. This protects the workers’ compensation carrier from the risk of the claimant settling the third party action for less than it is worth, in order to secure a monetary gain quicker while leaving the workers’ compensation carrier responsible for ongoing exposure.
However, if a claimant settles without the consent of the workers’ compensation carrier he or she can seek retroactive consent to settle the lawsuit or seek a judicial order from the Court, known as a nunc pro tunc order to effect consent. To secure such an order, the claimant must show the settlement was reasonable, the delay was not the worker’s fault, and the carrier was not prejudiced. In such cases, the workers’ compensation carriers should vigorously participate in the proceedings to ensure that the Court is aware of the prejudice it has experienced, if any, by the claimant’s failure to seek its consent prior to the settlement of the case.
Protect Your Lien and Offset Rights From the Start
The interplay of workers’ compensation benefits and third party actions is a nuanced and complex area of the law. There are numerous intricacies, notably NYS Insurance Law Section 5105 which deals with the threshold of first party benefits in an in-state motor vehicle accident. The workers’ compensation carrier’s active participation in and / or monitoring of the third party proceedings can have a significant impact on the value of the third party recovery to it. Stewart, Goldsmith, & DeCurtis defends employers, carriers, and third-party administrators across New York, protecting Section 29 subrogation rights. Contact our team to discuss protecting your lien, offset, and consent rights from the inception of a claim.