N.Y. Appellate Court Narrows Carrier's Liability for Fees, Costs

Saturday, September 22, 2007 | 0

Burns v. Varriale, 820 N.Y.S.2d 655 (N.Y.A.D. 2006).

Workers' compensation subrogation in New York has always been accompanied by the obligation of a workers' compensation carrier to equitably share in litigation costs and attorney's fees incurred by the worker. Kelley v. State Ins. Fund, 568 N.Y.S.2d 850 (N.Y.A.D. 1983).

While the determination of what constitutes an "equitable apportionment" of litigation costs has been left to the court's discretion, the courts have stated that the benefit a carrier derives from a plaintiff's attorney's actions includes not only the recovery of its lien, but the value of the estimated future compensation payments that it is relieved of making due to its statutory future credit. Donaldson v. Ryder Truck Rental & Leasing, 737 N.Y.S.2d 793 (N.Y. Sup. 2001).

The allocation formula used to determine the proportionate share of attorney's fees and costs for which a carrier is responsible for contributing has been allowed to take into consideration the full benefit a carrier receives from an employee's third party recovery, including the value of estimated future compensation payments it is relieved from making. These calculations involving future benefits must reduce future payments to "present value". Wood v. Firestone Tire & Rubber Co., 123 Misc.2d 812 (Sup. Ct. 1984). Under New York law, this is known as the "Kelley formula."

A recent New York appellate decision has given a subrogating carrier in New York some relief from the obligation to include all future benefit payments into the Kelley calculation.

In Burns v. Varriale, 820 N.Y.S.2d 655 (N.Y.A.D. 2006), the New York Supreme Court Appellate Division held that an award for death benefits, permanent, total disability or scheduled loss of use, should be included in the Kelley calculation, because these payments do not fluctuate and the duration of the benefits are predictable.

However, when a claimant has a permanent, partial disability, the court in Burns has held that because neither the duration nor the amount of such an award is readily predictable because the award may not continue for the rest of the claimant's life, such an award cannot be included in calculating the Kelley formula.

While a finding of permanent, partial disability gives rise to an inference that reduction in wages is related to the disability, the initial burden remains on the claimant to demonstrate that "reducing earning capacity is not due to age, general economic conditions or other factors unrelated to the disability". In other words, there is no inference of a permanent and total loss of wages upon a finding of permanent, partial disability, as opposed to a permanent, total disability.

Because a worker's actual future earnings and continued attachment of the label market constitutes unknown variables that cannot be reliably predicted, the value of workers' compensation benefits to be awarded to a worker with a nonscheduled permanent, partial disability is too speculative for a carrier to be made liable for an equitable share of attorney's fees incurred by the worker in connection with the third party action.

The net result of this favorable decision is that in permanent, partial disability cases, where the third party action is settled, the Kelley formula should not include these speculative future benefit payments. This means fewer opportunities for plaintiff's counsel to reduce or eliminate the workers' compensation carriers' liens or possibly require the carrier to even kick in fresh money. This translates into larger recoveries for workers' compensation carriers.

Conversely, Burns does allow the worker to apply to the Workers' Compensation Board, requesting that the carrier continue future benefit payments notwithstanding the third party settlement, if the claimant remains disabled on a causally related basis.

The work benefits may then be continued in the same proportionate percentage as the Kelley formula.

This would usually be about one-third of the permanent rate, since the legal fees and disbursements will generally approximate that percentage of the gross third party recovery.

The Burns case makes it the claimant's obligation to move the Board to direct continued payments in such cases so carriers may not have to make such payments where a claimant neglects to enforce his or her rights.

This column first appeared in the August newsletter for the clients of Matthiesen, Wickert & Lehrer, S.C.

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