Liens on third-party settlements under the New York Workers' Compensation Law.
Entitlement to reimbursement.The employer or workers' compensation carrier is entitled to be reimbursed for all benefits paid up to the date of the third party recovery less the proportionate share of the costs of litigation. This is simply the proportionate cost of the attorneys fees and litigation expenses (filing fees, copying fees, records retrieval costs, expert costs, etc.) incurred to obtain the judgment or settlement against the actual tortfeasor. (Note: when the third party case is a motor vehicle accident case, the compensation lien does not apply to the first $50,000 of first party benefits available, see NY No Fault Law § 5102 & WCL § 29(1-a)).
Since the decision in Kelly v. State Insurance Fund, 468 N.Y.S.2d 850 (1983), the apportionment of litigation expenses must be made against the entire benefit that the carrier obtained from the third-party recovery -in other words, the litigation expenses and attorneys fees are not "front loaded" into the immediate settlement proceeds, but have to be "spread out" over the life of the workers' compensation benefits which would be due to the claimant. Kelly also introduced the concept of further reducing an employer/carrier's reimbursement by including the "present value" of the future benefits obligation extinguished to be paid as a litigation expense - which serves to reduce the employer/carrier's lien further. In cases involving death, permanent total disability, or scheduled loss of use, the Kelly "future benefits obligation" can be calculated using the present day value of an annuity to cover the cost of these future obligations. (Of course - this should be negotiated - and where a potential obligation is simply unknowable, like future medicals - it should be left out).
If the claimant's third-party recovery is greater than the amount of workers' compensation benefits issued - then the employer/carrier get something more than just reimbursement - the employer/carrier has the right to credit against future payments to be made. (This credit is called a "holiday" by New York practitioners). Of course, this credit is reduced by the percentage of litigation costs assessed against the employer.
Amount of Employer’s (or Carrier’s) Recovery.If the amount recovered by the worker (or their dependents) from the third person is equal to or greater than the employer’s (or carriers) obligation under the Workers’ Compensation Law, then the employer is entitled to be reimbursed for the medical expenses incurred and compensation payments made to the worker or his family less the workers’ expenses of suit and attorney’s fees in pursuing the action against the third person. In order to calculate the amount of reimbursement, a statement of the third party settlement/recovery with all litigation expenses must be obtained.
If the amount recovered by the worker from the third person is less than the employer’s obligation, the employer is liable for the difference plus the worker’s attorney’s fees and costs of suit. The employer or carrier is entitled to the recovery from the third person, leaving their obligation to the worker as the difference between the compensation and the medicals paid out and the third person recovery, plus attorney’s fees and expenses of suit in pursuing the third person.
“Expenses of suit” is not limited to a specific dollar figure and “the attorney’s fee percentage" will effect the amount of reimbursement the employer/carrier is entitled to.
Confusion about Burns.The decision in Burns v. Varriale, 820 N.Y.S.2d 655 (3'd Dep't 2006), aff'd, 9 N.Y.3d 207 (2007), caused confusion about how to apply the subrogation rules in cases where the future compensation is difficult to calculate - for example, in permanent total disability cases (which can go on to the claimant's life expectancy) or claimants not yet found "permanently partial" or totally disabled at the time of the settlement. However, the practical take away from Burns is simple: at the time of settlement, the carrier/employer should be reimbursed from the proceeds of the third-party settlement (less their share of litigation expenses and attorneys fees, of course!) but because the future benefit is unknown, there is no "holiday" or credit. Instead, the employer/carrier simply pays out the ongoing benefits - whether they be indemnity or medical - as they come due at the same proportionate rate as the employer/carrier's portion of those litigation expenses until the lien is exhausted.
Permission to settle third-party case.Workers' Compensation Law § 29(5) requires either the carrier's written consent or a compromise order from the court in which a third-party settlement is pending for a claimant to settle a third-party case and continue to receive compensation benefits. If an employer or carrier refuses to consent to a settlement, a claimant may move in the trial court for judicial approval of the settlement, as well as an equitable apportionment of the litigation costs. When an employer/carrier consents to a third-party settlement, the right to future offset should be set forth - otherwise the Board can make a determination.
The employer/carrier should reserve the right to future offsets in writing and at the time the third-party settlement is approved. Remember - if the claimant fails to seek the approval fo the employer/carrier for the third-party settlement, or abandons that third-party claim without providing notice to the employer/carrier, her right to compensation benefits is extinguished!