WORKERS COMPENSATION LIENS Recent Decisions Refuse to Consider Ethical Issues of “Lien”
The New York appellate courts have just confirmed the traditional view that Workers’ Compensation Liens and their application will be maintained despite the history and considerations outlined below. The major issue upon appeal was the consideration of Ethical Conflicts that are present given changes in the law since its inception. The Courts were very careful to avoid even informing the bar of the issues by affirming upon the lower court’s decision. In that manner, there is no “paper trail”. The case is Traska v Allied Frozen Storage, Inc., case number 2. See google scholar link below. Application to appeal to the Court of Appeals was denied without opinion. In none of the decisions, did the Courts address the major issue raised, the Ethical Standards they establish for the bar. See analysis The History of Worker’s Compensation “Liens”.
History holds that Worker’s Compensation recoveries have always been considered to be a “lien” on any personal injury award. This right of recovery was against “any” recovery of the employee and was created by Worker’s Compensation Law §29(1). The statute further provides that from anysuch settlement or judgment, the “proceeds…shall bedeemed” for the benefit of the carrier first and the injured worker next, if any is left. This interpretation has been enforced by the courts. Moeller vAssociated Hosp. Service of Capital Dist, 304 NY 73 (1952); Granger v Urda, 44 NY2d 91, 404 NYS2d 319(1978). The theory is that it is wrong to be paid twice for the same loss and that part of the recovery actually belongs to the subrogee, the Workers Compensation carrier. This statute goes back to 1922 at a time when contributory negligence was the rule of law. What that meant was that if a worker recovered for his injuries, he was concluded to be 100% free from fault for the happening of the accident. If any fault was found on his part, there was no recovery. In a like manner, verdicts were “general” in 1922. The all encompassing award included all damages for past and future personal injuries, medical expenses and lost wages. It was reasonable in this “subrogation” statute that if the worker recovered medical expenses and lost wages that were paid by his employer, they should get them back. The statute provides for that exact result. It even provides that the attorneys receive the standard one-third retainer fee. The Modern Era Comparative Negligence is now the law in New York. This change came about first through the Court of Appeals is Dole v. Dow Chemical Co., 30 NY2d 143 (1973) and was followed shortly thereafter with the legislative enactment of CPLR Article 14-A in 1975. Obviously, issues of comparative fault impact almost every personal injury action by reducing the settlement or award.
The practice of issuing a “general” verdict has disappeared. Now, itemized verdicts are the required norm. Awards are routinely adjusted, modified and reduced for future damages for wages and medical expenses. CPLR 50-a and 50-b (1985) reduce certain awards to present value under certain circumstances. Article 16 of the CPLR (1986) affects apportionment of any award between parties. All these statutory enactments serve to reduce the injured party’s recovery such that the worker rarely recovers full value for his injuries.
However, according to the statute, the Workers’ Compensation carrier is entitled to recoup its total expenditures with no reductions other than for attorney fees. It, and often Medicare, will additionally take a credit for anticipated future medical expenses and require that a Supplimental Needs Trust be established. This practice has been in effect for 90 years to nearly everyone’s satisfaction. The Workers’ Compensation carrier is satisfied as it is fully reimbursed. Medicaid and Medicare are satisfied as they have a credit and often a fund for future expenses. The attorney is comfortable as he has collected two fees, one from his client and from the carrier. Only the injured worker has been required to accept less than full value.
Hypothetically Speaking, Assume the Carrier Were to Start an Action
If a carrier pays a worker’s medical expenses and lost wages, then it has a right of subrogation directly against the tortfeasor [Worker’s Compensation Law §29(1) & (2)]. “Subrogation” is the actual designation of New York Worker’s Compensation Law §29(1). Assume that a carrier decides to exercise its subrogation rights and brings a direct action to recover its payments. It is universally recognized that subrogation entitles the provider to stand in the shoes of the injured party and recover that which he himself would have had a right to recover. Winkelmann v. Exdelsior Ins. Co., 85 NY2d (1995).
A subrogee is required to prove negligence on the part of the tortfeasor and, under the laws of subrogation, may only recoup the percentage share of damages that he caused. In other words, if the defendant were found 70% at fault and the plaintiff 30%, the tortfeasor would only have to pay 70% of the total award. In this situation involving Workers’ Compensation, would the defendant, nevertheless, be required to pay 100% of the damages. Which laws would apply: those from 1922 or those in effect in 2009? Assume a jury concludes that the worker was able to return to work earlier than was ordered by Compensation. His past lost wages would be less that the total paid by the carrier. Would the defendant be obligated to pay the full amount paid by Compensation or would he be responsible only for those damages actually proven?
Ethical Considerations for Attorneys Representing Two Competing Claimants
Compensation Carriers demand that plaintiff’s counsel represent their interest as well as those of the retained client, the injured worker. This may present a conflict of interests. Attorneys are “Within the Bounds of the Law” [DR 7-102] required to represent a “Client Zealously” [DR 7-101]. The attorney in these cases receives contingent compensation from both the plaintiff and the Compensation carrier. This may present a problem as “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”. [DR 5-106]. Finally, “a lawyer may not accept compensation for legal services from other than the client.” [DR 5-107].
Interplay With Medicaid and Ahlborn Considerations
There has been much discussion regarding whether the United States Supreme Court decision in Arkansas Department of Health and Human Services, et al v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752 (2006) should be extended to the Workers’ Compensation realm. Ahlborn involved similar issues in the Medicaid field. The exact rationale that is being argued in Workers’ Compensation had been the rule of law in the field of Medicaid recovery. Calvanese v Calvanese, 93 NY2d 111, 1999) and Gold v United Health Services Hospitals, 95 NY2d 683, (2001) both held that “the agencies have broad authority under those provisions to satisfy the lien from the entire amount of the personal injury judgment or settlement.”Gold v United Health Services Hospitals, 95 NY2d 683 at 691, (2001). The practical application was that Medicaid agencies were permitted to recover the full amount of their medical expenditures, regardless whether such items were contemplated, pleaded or proven as a part of the personal injury settlement or judgment.
The rationale and this broad conclusion were held to be flawed and over reaching in Arkansas Department of Health and Human Services, et al v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752 (2006). The Supreme Court recognized that there are separate claims for medical expenses as opposed to claims for lost wages and pain and suffering. It was held that Medicaid might only recover for medical expenses and, if there was a combined recovery, it needed to be allocated between the different causes of action. That analysis is both consistent with the Medicaid enabling legislation and independent causes of action as are recognized and required to be proven at trial.
The same analysis and reasoning may apply to Worker’s Compensation recoveries and claims. The courts have recognized, to a limited degree, that the carrier’s right of recovery is dependent upon the cause of action under which it is predicated. In Martin v Agway Petroleum Corp., 161 AD2d 1129, (1990), the court held that the “lien” on the recovery from the wrongful death claim only was credited against the wrongful death payments. In a like manner, medical and wage payments were taken from the personal injury claim. The courts have held that a spouse’s derivative recovery is independent and not subject to the Worker’s Compensation carrier’s claims of recovery or credit. Miszko v. Greso, 191 Misc. 2d 299, affd as modified 4 AD3d 575, , lv. denied 3 NY3d 606, (2004). The U. S. Supreme Court cited as authority in Ahlborn a Washington State Supreme Court case involving Workers Compensation where specific and identifiable portions of the tort recovery were assigned to the spouses’ consortium claims and were, therefore, exempted from the claims by the carrier for reimbursement. Flannigan v. Department of Labor and Industry, 123 Wash 2d 418, 869 P.2d 14 (1994).
The suggestion to allocate and assign payment categories and independent causes of action is not new to the courts. Particularly in New York, there are standard, recognized charges regarding claims and theories of recovery in the Pattern Jury Instructions. Beyond wrongful death (PJI 2:320) and consortium (PJI 2:315), if a claimant is unable to work and chooses to claim “lost wages”, those must be pled and proven by competent evidentiary proof at trial. (PJI 2:290). In a like manner, “medical expenses”(PJI 2:285), “pain and suffering” (PJI 2:280) and “loss of enjoyment of life” (PJI 2:280.1) are specific items of damage that require proof. Also, each such claim for damage must be itemized individually in the damages section of the verdict sheet (PJI 2:301) and on the special verdict form (PJI 2:301 SV-I).
The New York courts had just affirmed the status quo, see below, without any reference to the Ethical issues raised. The decisions, which may be considered “issue avoidance” are obfuscated and hidden in the form that the Appellate Courts “affirmed on the opinion of the court below”. No one can even know the issues, let alone the analysis. For the time being, the Courts prefer that the State Insurance Fund and Workers’ Compensation carriers recoup their compensation payments from their injured workers out of resolutions without consideration of Ethics, comparative negligence or itemization in verdicts.
Categories: Labor Law
Decision supports status quo…. — Erie Supreme Court, J. Sconiers, declined to sever the workers’ compensation claim from the personal injury claim in Traska v Allied Frozen Storage, decided August 6, 2009. The Court started with the premise that Workers’ Compensation Law 29(1) confers a lien and, as such, finds that there is a lien in the case. The Court distinguishes Ahlborn as dealing with Medicaid and Fasso as dealing with private health insurers.The Court does recognize that “Under this scheme, both the attorney for the injured plaintiff and the workers’ compensation provider will be compensated from the amount of the settlement or judgment first, leaving the injured plaintiff with only those funds that are or may be remaining…while this court is sympathetic…regarding these obvious inequities, any changes to the administration of workers’ compensation liens must come through the legislature.”The case is being appealed by the plaintiff…. JMH
Create Jobs & Net More Money for the State — Compensation carriers have counsel on staff. Since the W.C. statute dictates a fee schedule, selecting counsel from the private sector to replace the injured workers attorney would neither prejudice nor cost the carrier anything more than it is already paying. If counsel are on salary, then the carrier or the State could keep the attorney fees thereby increasing their recovery over what they are taking in at present. There is no prejudice that accrues if the compensation recovery case is severed from the personal injury case. Conflicts of interest are eliminated. This transition has already begun in the private health care field. Intervention is becoming standard with carriers retaining counsel of their choosing and compensating them according to their own dictates as opposed to a statute or the standard plaintiff’s retainer. Certainly, it is easier to simply compel a plaintiff’s attorney to do the work of the State. Workers’ Compensation carriers and the State may object at first. The perceived “threat” is that the State would be afraid that it will lose revenues. However, the State certainly is able to adapt and may recover as much or more through a modified system. The State itself has thousands of attorneys and staff in its employ already monitoring these claims. All that is necessary is that it assume a little more responsibility . It creates more work and jobs for itself while collecting more revenues. This could be the best of both worlds.
The status quo is not always correct. Sometimes the environment changes. — The reviewer is correct that Ahlborn does not specifically deal with Workers’ Compensation. However, Ahlborn did overrule two New York Court of Appeals cases – Gold & Calvanese – Medicaid cases that held that the same exact concepts in Medicaid only constituted a right of subrogation, not a lien. The analysis is consistent. That the courts may ultimately decide to maintain the status quo and decide that insurance companies should recover their expenditures does not change the fact that the emperical analysis is that this statute is a subrogation statute!
Ahlborn does not apply to workers’ compensation liens — See, 2008 NY Slip Op 28404
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