Saturday, December 19, 2009

Personal Injury - The Workers Compensation Lien, In A Deficiency Scenario, Unfairly Usurps Personal Injury Recoveries

Worker's compensation is a great idea.  In it's modern form, it is a mandated insurance program whereby people who are injured at work, regardless of fault, can have their medical bills paid and recover for lost wages. In exchange for this protection, workers cannot sue their employers.  In the U.S., these laws originated in the early twentieth century, and by 1948 every state had a worker's compensation scheme.

In cases where there is a third-party at fault for the worker's injury, and the injured worker brings a personal injury suit, New York law gives the worker's compensation insurance carrier a right to recover from the personal injury proceeds the amount it paid or is obligated to pay.  When this happens, the worker's compensation lien is reduced by a proportionate share of the litigation cost (i.e., attorneys fees and expenses).  This issue regularly arises in construction accident cases, and frequently occurs in other types of cases as well.

In some cases, where the worker receives full compensation, and is not permanently disabled from work, the lien is fair and prevents double-recovery for lost wages and medical expenses. The same fairness, however, would be accomplished by allowing a collateral source set-off for worker's compensation payments.

The more problematic case arises where issues of comparative fault, questionable liability, or limited insurance prevent full recovery, or where the injured person has a permanent disability and will be receiving permanent worker's compensation benefits.  In those cases, the worker's compensation lien can create a terrible inequity.  When the worker recovers less than the lien amount (after reduction for the full litigation cost), the compensation carrier has a right to take the worker's entire share of the recovery.  Where the worker's compensation carrier is paying continuing benefits, the compensation carrier has a right to its full lien (minus a proportionate share of litigation costs), and can also take a credit against future benefits (i.e. go on a "holiday") in the amount of the worker's recovery from the at-fault party. (See Burns v. Varialle; Sheer v. State Ins. Fund). Essentially, it is possible for the worker to go through an entire lawsuit, perhaps appearing for depositions or even trial, and then receive nothing other than a lump-sum advance on worker's compensation benefits they would have received anyway.

Medical insurers used to be able to do something similar, asserting a subrogation lien against personal injury recoveries for benefits they had paid, but New York recently passed a law rendering such liens void. (Coverage Counsel; NYPILBCent. NY Injury Blog). 

The reasoning behind this new law, that the insurer received premiums in exchange for its payout obligation and it is unfair for the insurance company to benefit at the expense of the injured party, is equally applicable to worker's compensation insurers.  Indeed, in a medical insurance context, the collateral source rule (desribed above) applies to prevent double recovery.  The new law, however, does not apply to worker's compensation insurers (whose lien is protected by a seperate statute).

Accordingly, I submit that the State Legislature should consider an amendment to the Worker's Comp Law similar to the recent law affecting medical insurers.  The collateral source set-off approach still avoids double recovery, but is preferable for plaintiffs because it accomodates pain and suffering compensation in a disputed case notwithstanding a large reimbursed for economic losses.

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