A. WORKERS COMPENSATION – A SHORT HISTORY Workers’ Compensation Law §29.
“Remedies of employees; subrogation.
1. If an employee entitled to compensation be injured by the negligence or wrong of another. In such case, the insurance carrier shall have a lien on the proceeds of any recovery [and] such recovery shall be deemed for the benefit of such carrier.
2. If such injured employee has failed to commence action such failure shall operate as an assignment of the cause of action.”
When the Workers’ Compensation Statute was enacted in 1922, New York was a “contributory negligence” state. That meant that if an injured worker recovered in a third party action, the Defendant was, by definition, wholly at fault and 100% responsible. Plaintiff’s culpability always had to be zero. If any fault was attributable to a Plaintiff, there was no recovery. That also meant that if there was a recovery for personal injuries, the compensation was full, total and not reduced.
Workers’ Compensation Law §29 since 1922 has been essentially constant in form and interpretation. Other substantive laws and case applications that existed relative to tort actions since 1922 have changed dramatically. Of significance, comparative negligence came into existence in 1973 in New York with Dole v. Dow Chemical Co., 30 NY2d 143, 331 NYS2d 382 (1973).
Legislatively, comparative negligence was formally enacted by Article 14 of the CPLR in 1975. These changes apply to and impact all personal injury cases. Routinely, verdicts and even settlements are reduced by considerations of comparative negligence. In fact, it is the rare case that does not incorporate a reduction for fault of the claimant.
During the earlier time frame, juries rendered only “general verdicts.” If a Plaintiff obtained a recovery, it came in the form of a single lump sum. That award was presumed to include all items of claimed damage for past and future personal injuries as well as all past and future lost wages, medical and other expenses.
Given these predicates, it was both logical and equitable in 1922 for the Legislature to decree and the Courts to interpret that if an injured party collected medical expenses and lost wages that had been paid by his employer, that part of the recovery should be remitted to his employer’s insurance carrier. An employee was not permitted to “double dip” and recover for those items of damage twice. The above is exactly how the statute has been interpreted and enforced.
With that contextual history since its enactment in 1922, the Workers’ Compensation Statute has been considered to be a “lien” on any personal injury recovery. This right of the carrier is against “any” recovery of an employee. Moeller vs. Associated Hosp. Service of Capital Dist., 304 NY 73 (1952); Granger vs. Urda, 44 N.Y.2d 91, 404 N.Y.S.2d 319 (1978). The statute further provides that from any such settlement or judgment, the “proceeds shall be deemed” for the benefit of the fund.
In the modern era, the practice of a jury issuing a general verdict has totally disappeared and, in fact, is prohibited. Now, due to legislative enactments and case law, itemized verdicts are required. As of November 12, 2009, the Legislature has further refined their requirements mandating that a decision awarding damages shall specify the applicable elements of special and general damages upon which the award is based and the amount assigned to each element, including but not limited to medical expenses, dental expenses, podiatric expenses, loss of earnings, impairment of earning ability, and pain and suffering [and are to] be further itemized into amounts intended…for past and future damages. CPLR 4545(e).
Jury awards for future damages including anticipated lost wages and projected medical expenses and nursing care are statutorily modified by CPLR 50-a and 50-b which were enacted in 1985. The Courts routinely adjust and reduce to “present value” jury awards for specific items of damage and leave others as they were rendered. Since 1986, there have been additional qualifications and restrictions under Article 16 of the CPLR relative to apportionment and, therefore, monetary payments. All the above changes invariably result in an injured plaintiff collecting less than the full jury award or even less than the full value of his injuries and losses.
It is also a recognized principle that the Workers’ Compensation carrier has the right to start its own action to recover its expenditures if an injured worker does not bring his own action. (Workers’ Compensation Law §29.2) This approach is rarely, if ever, required in that, where there is a viable third party claim, there is invariably a plaintiff’s attorney willing to pursue the personal injury claim. Presently, Plaintiffs attorneys fully reimburse the Workers’ Compensation carrier for all of its expenditures, regardless the discounts the plaintiff is forced to accept due to comparative fault, proximate cause and/or limited insurance coverage. Naturally, full reimbursement paid to the Workers’ Compensation carrier further reduces the amount remitted to the injured plaintiff.
As the Workers’ Compensation carrier makes a full recovery and is fully compensated, one would expect that they would be fully satisfied. Plaintiffs attorneys are compensated from the gross settlement. They take a full one-third from the Workers’ Compensation carrier’s recovery for reimbursement of medical expenses and lost wages and a full one-third from the client on the personal injury recovery. One could deduce that the Workers’ Compensation carrier and the Plaintiff’s attorney are fully satisfied with this disbursal format as they are recovering the maximum allowable. The only exception in this scheme is the injured party himself. The Plaintiff’s recovery is reduced by the competing claimant, the Workers’ Compensation carrier, who is not impacted by comparative negligence, proximate cause or even policy limitations. The Plaintiff may not fully rely on his attorney to look after his individual interests as the attorney is representing and taking a fee from two claimants.
B. ETHICAL COMPONENTS
“A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of or against the clients.”
Rules of Professional Conduct, Rule 1.8:(g)
With the foregoing history in mind, the limited issue before this Court is whether the Workers’ Compensation recovery claim, under the circumstances of these two cases, they would be better served by severing the personal injury claims from the Workers’ Compensation recovery claims.
In the adversarial world of the tort system, plaintiffs attorneys are highly motivated to maximize their client’s recovery. There is a direct relationship between the plaintiff’s monetary recovery and the attorney’s fee. The more money the injured worker recovers, the more money the attorney retains as his fee. This form of compensation results in the attorneys motivations being directly and solely related to their client’s best interests or monetary recovery.
It is not open to dispute that a lawyer is “charged with a high degree of undivided loyalty to his client.” Kelly v Greason, 23 NY2d 368, 296 NYS2d 937, 943(1968). “Uberrima fides [absolute honesty] is the measure of the fidelity owed by a lawyer to his client.” In re Mahan, 237 App. Div. 664, 262 NYS 702, 704 (First Dept., 1933). The attorney “above all things he owes undivided loyalty to his client, unhampered by obligations to any other employer…Divided obligations in trust relations are obnoxious to the law.” People v People’s Trust Co., 180 App. Div. 494, 167 NYS 767, 768 (Second Dept., 1917). In case these mandates are not clear enough, the Court of Appeals has noted that “regardless of disclosure and consent…where divided loyalties exist…a lawyer may act detrimentally to the client.” Kelly v Greason, 23 NY2d 368, 296 NYS2d 937, 946 (1968).
In the early days of Workers’ Compensation carriers had been known to retain for their injured employees a particular attorney the employer chose who was known to be understanding of the compensation carrier’s recovery rights. The courts recognized that “the insurance carrier was vitally interested” in the third party action. This practice was considered ethically marginal. See: In re Bovard, 228 App. Div. 263, 239 NYS 465, 467 (First Dept., 1930); In re Cherry, 228 App. Div. 458, 240 NYS 282 (First Dept., 1930).
There is a continuity and consistency in this line of reasoning, analyzed by the Court of Appeals last year where they observed in Fasso v Doerr, MD, et al, 12 NY3d 80, 875 NYS2d 846 (2009), that [t]he injured party’s goal is to maximize recovery without regard to whether its insurer recoups any monies it expended for the plaintiff’s medical bills the insurer’s objective is to reclaim as much of the money it paid as possible regardless of whether its insured has a desire to settle the case rather than proceed to trial an adversarial posture [can be created] between a plaintiff/insured and its insurer because neither has an incentive to consider the interests of the other, especially where the potential damages exceed the available sources of recovery.
The insurer is only interested in its own recovery regardless whether the insured’s compensation is adequate or even nil.
For a single attorney to represent both the personal injury client and the health care provider where resolution is contingent upon both parties accepting a single lump sum to be divided/negotiated by that attorney is an obvious conflict of interests and a violation of the Professional Rules of Conduct. It is equally obvious that the absence of conflicts of interest is one of the primary principles underlying the integrity of the legal system and personal injury law.
If the Plaintiff’s attorney’s fee is directly and solely tied to his client’s monetary recovery, the attorney is unquestionably motivated to do everything in his power to maximize that recovery. However, if the attorney’s recovery is from a single pool of money that he has the authority and responsibility to allocate as between multiple claimants, his mission changes. If the attorney’s fee is on the gross lump sum, the attorney no longer needs to be as concerned with any individual client’s recovery. The logical extension is that the attorney will be less motivated to maximize the recovery of or for any single individual/client so long as he maximizes the gross recovery.
C. FACTUAL CONTEXT
In the two cases before this Court for medical expenses and lost wages, the Workers Compensation carrier paid monies and expects a full recovery minus the costs of litigation (COL) which includes attorneys’ fees. Even without the “lien” concept upon which Respondent totally relies,
it is well established that when an insurer pays for losses sustained by its insured that were occasioned by a wrongdoer, the insurer is entitled to seek recovery of the monies expended under the doctrine of equitable subrogation (see e.g. Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 3 NY3d 200, 206 ; Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 581 ; Federal Ins. Co. v Arthur Anderson & Co., 75 NY2d 366, 372 ; Connecticut Fire Ins. Co. v Erie Ry. Co., 73 NY 399, 402 . Equitable subrogation is premised on two related concepts. First, that the party who causes injury or damage should be required to bear the loss by reimbursing the insured for payments made on behalf of the injured party. Second, that the injured party should not recover twice for the same harm – once from its insurer and again from the wrongdoer (see Winkelmann v Excelsior Ins. Co., 85 NY2d at 581); Fasso v Doerr, MD, 12 NY3d 80, 875 NYS2d 846 (2009)
In each case herein, the Defendant’s insurance carrier, the Workers’ Compensation insurance carrier and the Court all expect to that there will be a gross offer to settle all claims for a single lump sum. That sum is expected to be negotiated and then allocated by the plaintiff’s attorney as between the plaintiff and the Workers’ Compensation carrier. In each case before this Court, neither the injured Plaintiff who retained this particular attorney nor the attorney have any say in whether the attorney must also represent the insurance carrier for Workers’ Compensation on its recovery claim. The Plaintiff’s attorney is expected and required to obtain a recovery for the Workers’ Compensation insurance carrier regardless and irrespective of how successful he is in maximizing his injured client’s personal injury recovery.
In consideration of a one-third (1/3) fee from the Workers’ Compensation carrier, the plaintiff’s attorney must seek recovery of that claim. Funds ultimately recovered must be allocated between the clients, with the unretained client, the Workers’ Compensation insurance carrier, having the priority right of recovery. That unretained claimant is competing with the retained client. The plaintiff’s attorney is required to “sell” the ultimate resolution to his retained client while maintaining the illusion that he, the attorney, is solely interested in his retained client’s best interests and that he has no conflicts. Of course, he recovers from the Workers’ Compensation carrier a one-third fee.
There are even instances where the Plaintiff’s own attorney is constrained, by operation of present interpretation of the statute, to remit all the money recovered to the Workers’ Compensation carrier and, of course, the Plaintiff’s attorney, himself. There are occasions where the injured Plaintiff recovers nothing though the compensation carrier and the attorney are fully compensated. This result can and does accrue despite the fact that the Plaintiff’s attorney was retained solely by the Plaintiff in each case to represent him alone for his personal injuries.
As to the requirement, by case law and by Professional Rules of Ethics, that the Plaintiff’s attorney must always solely act in the best interests of the client who retained him, the observation has been made that “the unsophisticated client…may not be regarded as able to understand the ramifications of the conflict.” Kelly v Greason, 23 NY2d 368, 296 NYS2d 937, 946 (1968) citing Matter of Young, 188 App.Div. 538, 177 NYS 259 (First Dept., 1919).
SEVERENCE OF THE TWO CONFLICTING CLAIMS IS AN ETHICALLY PRUDENT
AND APPROPRIATE PRECAUTION
There would appear to be a clear ethical conflict in the Plaintiff’s attorney attempting to handle both the personal injury claim and the Worker’s Compensation recovery claim in these actions. “A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of or against the clients.” Rules of Professional Conduct, Rule 1.8:(g) The Plaintiff’s attorney in these two cases objects to such representation on the ground that it creates a conflict of interests and constitutes an ethical violation. The simultaneous representation of an injured victim and the health insurer on their recovery claim has recently been recognized by the Court of Appeals as creating, at the very least, an uncomfortable ethical position. Fasso v Doerr, MD, 12 NY3d 80, 875 NYS2d 846 (2009)
Workers’ Compensation carriers have the right to intervene and/or pursue an independent action. “If such injured employee. . .has failed to commence action… such failure shall operate as an assignment of the cause of action.” Workers’ Compensation Law §29.2. Workers’ Compensation carriers object to intervention, presumably, because they have coerced labor in the form of Plaintiffs attorneys who, though not retained, nevertheless pursue their claims. Workers’ Compensation carriers are not required to expend any effort. They are not required to conduct an investigation into the happening of the accident. They advance no disbursements and take no risks of loss. Those are all borne by the attorney and the Plaintiff. The Workers’ Compensation carrier only assumes the risk of success. It is no wonder they favor the status quo.
Severance of the personal injury claims in these two cases from the Workers’ Compensation recovery claims would cause no prejudice to the Worker’s Compensation carriers herein. They already have retained counsel. They will appear before this tribunal. These counselors, retained by the Workers’ Compensation carriers, would not prejudiced or harmed by assuming responsibility for the prosecution of the recovery claims as they are already (a) on retainer and/or (b) would be entitled to the statutory one-third (1/3) fee on the recovery. As to the adequacy of their compensation, if one-third of the Workers’ Compensation claim recovery is adequate for an unretained attorney, it certainly should be adequate for retained counsel.
The Worker’s Compensation carriers then would be absolutely assured of unconflicted and uncompromised loyalty on their recovery claims, which is only what all claimants desire and the profession promotes. If the attorney fees are negotiated to be contingent, then the attorney retained by the carrier would be highly motivated to maximize the Workers’ Compensation recovery. The personal injury clients herein would then have the attorney they selected and retained who is permitted to solely look after their interests.
There really is no question that a conflict of interest is created by an attorney representing two claimants with opposing claims and allocating a single lump sum between them. The Professional Rules of Conduct are a product of the Appellate Courts. They were not enacted by the Legislature. Is it reasonable and prudent for the Courts to compel attorneys to violate the Professional Rules of Conduct that the Courts themselves have established? Attorneys should not be forced to compromise their ethical standards, the profession’s ethical standards and their sworn obligations to the client who retained them because of an anachronism and maintenance of an obsolete 90 year old comfort zone. Severance of the claims eliminates any and all question of conflict. The appearance of propriety is preserved and enhanced. The Professional Rules of conduct are closely followed. The integrity of the legal system is strengthened and more patently unbiased.
POINT IIIT IS ARCHAIC TO MAINTAIN THAT CLAIMS AND CAUSES
OF ACTION ARE INDIVISIBLE
It is appreciated and recognized that the broad overview has been to consider Workers’ Compensation payments a “lien” on any third party recovery. This generalization has been tempered over the years to the extent that the New York Courts have come to recognize that the carrier’s recovery is limited relative to distinct causes of action and claims.
For example, it has been held that “the court erred in treating the settlement for the personal injury action and that for the wrongful death action as one for the purpose of determining the [Workers’ Compensation] lien…The two causes of action are separate and distinct.” Martin v Agway Petroleum Corp., 161 AD2d 1129, 555 NYS2d 946 (3rd Dept., 1990). Medical and wage repayments were taken only from monies allocated to the personal injury recovery which, according to the pleadings and the release, included claims for medical expenses. Recovery of “wrongful death payments” by the Workers’ Compensation carrier were only recoverable from the wrongful death award and allocation. This holding is entirely consistent with PJI 2:320.
In a like manner, a spouse “possesses a cause of action for loss of consortium separate and distinct from her husband.” Miszko v Greso, 191 Misc.2d 299, 741 NYS2d 390, aff’d as modified 4 AD3d 575, 772 NYS2d 723, lv. denied 3 NY3d 606, 785 NYS2d 22 (2004); Flannigan v Department of Labor and Industry, 123 Wash 2d 418, 869 P.2d 14 (1994). An award to a spouse is not subject to the Workers’ Compensation carrier’s claim for reimbursement or credit. Miszko v Greso, supra. “Any conceivable double recovery …can be obviated by deducting from the computation of damages in the consortium action any compensation given her husband….since the possibility of double recovery can be eliminated by this simple adjustment of damages, it should not constitute a basis for denying [the wife’s] action.” Millington v Southeastern Elevator Co., 22 NY2d 498, 293 NYD2d 305 (1968) citing: Moran v Quality Aluminum Casting Co. 34 Wis2d 542 and Dini v Naiditch, 20 Ill.2d 406.
These concepts of multiple claims arising out of a single accident are not novel. The Federal Courts have observed that
at the time of the accident, the injured party acquires in tort one or more rights of action or claims against those responsible for the injuries. These rights of action or claims can be likened to a “bundle of sticks” See United States v. Ben-Hur, 20 F.3d 313, 317-18(7th Cir. 1994)(stating that property rights are likened to “bundle of sticks” each stick separately alienable)…As a condition of receiving medical assistance from a state, a medical assistance recipient assigns to the state one stick from that bundle-the specific claim to recover expenses from those responsible for the injuries. At this point, the state becomes the sole owner of the claim against any third parties from medical expenses. But the recipient retains ownership of the remaining sticks in the bundle-that is to say, the claims for pain and suffering, emotional distress, disability, disfigurement, loss of earnings and loss of earning capacity. Tristani v Richman (W.D.Pa. @ p. 66, March 25, 2009)
The proposal to allocate and assign specific categories of damages is an established practice and legislatively mandated procedure in New York State. Monetary awards in personal injury actions must be set forth in the pleadings and assigned to specific elements in the charge and verdict sheet. “The court shall instruct the jury…[to] specify…the amount…to, medical expenses, dental expenses, loss of earnings, impairment of earning ability, and pain and suffering” past and future and for the years intended to compensate. CPLR 41111(f). “Although custodial care and rehabilitation services are not mentioned specifically in CPLR 4111(f), they constitute special damages and should be listed in the special verdict form.” PJI 2:301, text at page 1600 (2009).
There appears to be unanimity among the Federal Courts, the New York Legislature, the Pattern Jury Instructions and some New York state court decisions that from a single tort/accident, several claims and causes of action can accrue relative to a single victim. Each of those claims must be proven by competent proof and evidence and itemized on the Verdict Sheet. This is an era of legislatively mandated itemized verdicts, where the fear is that a victim might ever be overpaid for his injuries, and where “the possibility of double recovery can be eliminated by this simple adjustment of damages.” Millington v Southeastern Elevator Co., 22 NY2d 498, 293 NYS2d 305 (1968); Winkelmann v Excelsior Ins. Co., 85 NY2d at 581). In this environment, clinging to such an archaic principle is illogical.
The United States Supreme Court challenged and overruled certain interpretations regarding of the scope and expanse of “subrogation” in Arkansas Dept. of Health and Human Services vs. Ahlborn, 126 S.Ct. 1752 (2006). The Ahlborn case effectively overruled the two New York cases [Calvanese vs. Calvanese, 93 N.Y.2d 111, 688 N.Y.S.2d 479 (1999) and Gold vs. United Health Services Hospitals, 95 N.Y.2d 683, 723 N.Y.S.2d 117 (2001)] that had held that Social Services had a lien on any recovery from a personal injury action. The Supreme Court in Ahlborn held that the claim of reimbursement was from designated and identified medical expenses only (“one stick from that bundle”) and would not and could not attach to the recovery for personal injuries, pain and suffering (“this larger bundle of sticks”). Put another way, the United States Supreme Court recognized that claims for medical expenses and claims for personal injuries were separate, different and distinct claims.
Obviously, Ahlborn does not rule on nor is it controlling relative to this particular statute. However, it does distinguish as between different claims arising out of a single incident as do the New York Legislature and the Pattern Jury Instructions on these specific issues. That being acknowledged, how different is the foregoing analysis in Ahlborn from the Workers’ Compensation statute where, regardless the itemization, in a personal injury action the “recovery shall bedeemed for the benefit of such fund”?
Given that claims and causes of action are universally recognized as independent and “separately alienable”, it is inconsistent to maintain the illusion that they constitute a single claim in Workers’ Compensation cases. Occasionally, given natural progressions and developments in the law, stare decisis alone is an insufficient reason to perpetuate an archaic, outdated and conflicted procedure and process.
CONCLUSION WORKERS’ COMPENSATION CARRIERS
SHOULD ASSUME RESPONSIBILITY OF
PROSECUTION OF THEIR OWN RECOVERY
 This is especially important in this age where governmental institutions are subject to increasing scrutiny and skepticism as to their ethics. The former State Comptroller Hevesi pleaded guilty to defrauding the state. The immediate past governor, Spitzer, had to resign because he was caught in a prostitution ring. The former Senate Majority Leader, Bruno, was just convicted on two felony charges. As lawyers are often a target of perceived ethical inadequacies by the public, would it not be prudent and proactive to err on the side of ethics? There is no suggestion here that recovery claims be barred. The suggestion is simply that one lawyer not be required to represent two competing parties.
Categories: Labor Law
APPELLATE REVIEWS — The Appellate Division of the Fourth Department in New York and the Court of Appeals denied consideration of the above Ethical issues and affirmed upon the lower courts memorandum decision. There is no published decision that articulates the issues raised upon the motion and the decision itself did not address the Ethical concerns. The Status Quo remains!
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