Carrier Has No Lien on Taxi Driver's Personal Injury Settlement

Saturday, August 11, 2007 | 0

By Larry Rogak

Alam v. Taxi Wheels to Lease Inc., NYLJ 08/07/07 (Index no. 46810/03) (Supreme Court, Kings Co.) (Harkavy, j)

Defendant Taxi Wheels is an entity licensed by the New York City Taxi and Limousine Commission (TLC) to manage taxi medallions, and was the managing agent of the taxicab operated by plaintiff and its title owner.

Defendant Matilda Prempeh was the owner of the medallion affixed to the taxicab which is the subject of this action. Pursuant to a written agreement dated April 4, 2000, Prempeh granted to Taxi Wheels the exclusive right to lease her medallion in exchange for a guaranteed monthly payment from Taxi Wheels.

Pursuant to a written agreement dated April 30, 2002, Taxi Wheels then leased Prempeh's medallion to plaintiff and his partner, Chaudry Rafi, for a fixed weekly fee. As neither plaintiff nor his partner owned a taxicab, Taxi Wheels also leased to them a 2000 Ford Crown Victoria taxicab. At all times, Taxi Wheels was the title owner of the taxicab.

Defendants Hercules Tire and Cooper Tire manufactured and distributed the tires on the taxicab.

Under the terms of the lease between Taxi Wheels and plaintiff Alam and his partner Rafi, Alam and Rafi had sole possession and control of the taxicab. Under the lease, Alam and Rafi were also responsible for all inspections, maintenance and repairs, including tri-annual TLC safety inspections.

The subject accident in this personal injury action occurred on Dec. 9, 2002, at approximately 11:45 p.m. Plaintiff alleged that on that day he was driving the taxicab with a passenger in the back. The passenger alerted plaintiff to a loud noise which was coming from the back of the vehicle, near where he sitting, and asked plaintiff to stop the vehicle.

Plaintiff stopped the vehicle and his passenger got out, and fled the scene.

Plaintiff opened his door, and was exiting the vehicle, when the left rear (driver's side) tire exploded, knocked him to the ground and blinded him. Prior to the occurrence of the accident, plaintiff and his partner had operated the same taxicab for more than seven months, seemingly without incident.

Plaintiff thereafter commenced this action by the filing of a Summons and Verified Complaint on or about Dec. 4, 2003.

Subsequent to the occurrence of the subject accident, plaintiff applied for and received workers' compensation benefits in connection with the injuries he sustained in the accident. Plaintiff's claim was for injuries to his head, neck, left shoulder and both eyes, for loss of vision. The claim remains in litigation on the issue of causally related loss of vision.

Hereford Insurance Co., the workers' compensation carrier for defendant Taxi Wheels, has thus far paid out approximately $15,416.67 in benefits.

In addition to the workers' compensation claim, plaintiff commenced the instant third-party personal injury action with claims sounding in negligence and products liability.

Plaintiff asserts counsel for defendants Hercules Tire and Cooper Tire offered to settle plaintiff's claims, and plaintiff accepted.*fn1 Once the partial settlement was agreed upon, plaintiff sought the approval of Hereford, Taxi Wheels' workers' compensation carrier, to settle the action.

Plaintiff alleged that Hereford had withheld its consent to the settlement on the grounds that the workers' compensation carrier is entitled to recoup a lien for workers' compensation benefits which were paid in lieu of no-fault benefits.

By letter dated March 27, 2007, Hereford declined to consent to the proposed settlement and demanded $10,277.78 for reimbursement of the worker' compensation benefits. Plaintiff pointed out that if Hereford were permitted to recover the amount of the workers' compensation benefits from the settlement, plaintiff would be left with a reduced net recovery from the settlement.

Plaintiff contended that the instant circumstance is not one in which a workers' compensation carrier can assert a lien against an insured's recovery from a third-party.

Hereford contended that it is, pursuant to the Workers' Compensation Law, entitled to assert a lien against the proceeds of any recovery by the plaintiff in a third-party action for workers' compensation benefits which Hereford paid out for the same injuries.

"The issues herein," held the Court, "ultimately concern the interaction between the Insurance Law and the Workers' Compensation Law, particularly Insurance Law Section 5102 (a) and (b), and Workers' Compensation Law Section 29 (1), (1-a) and (5)."

"Workers' Compensation Law Section 29 (1) provides that a workers' compensation carrier has the right to assert a lien against the proceeds of a claimant's third-party action for the same injuries. Workers' Compensation Law Section 29 (1-a) limits the application of that statute and provides that a carrier can not assert a lien against proceeds received pursuant to Insurance Law Section 5104 (a), for compensation or benefits which were paid in lieu of first party benefits which another insurer would have otherwise been obligated to pay in an action by a covered person against another covered person, for injuries arising out of the negligent use or operation of a motor vehicle.

This limitation arises from the basic operation of the New York State No-Fault Law and the requirement of Insurance Law Section 5104 (a) that, in such an action, there is no right to recovery for basic economic loss. Prior to the enactment of Section 29 (1-a), the victim of an motor vehicle accident arising out of the negligent use or operation of a motor vehicle could not recover their basic economic loss in a third-party action, pursuant to the No-Fault Law, but could still have a lien imposed on any recovery by a workers' compensation carrier for benefits paid for the same basic economic loss.

The court notes, that although Section 29 uses the phrasing 'in lieu of first party benefits,' for the purposes of determining the interaction between the two statutes, that phrase 'first party benefits' are payments made by an insurance carrier to reimburse an accident victim for 'basic economic loss' due to personal injuries (see Dietrick, 76 NY2d at 251; Insurance Law Section 5102 [b]). Workers' compensation benefits are, by definition, limited to reimbursement for basic economic loss (Shutter, 90 NY2d at 710; Workers' Compensation Law Section 10 et seq.)."

"Insurance Law Section 5104 (b) permits a lien in any action by a covered person against a non-covered person in any action for injuries arising out of the use and operation of a motor vehicle. The court points out that where, by comparison, Section 5104 (a) applies to actions by a covered person against another covered person and Section 5104 (b) applies to actions by a covered person against a non-covered person, the two sections are also distinguished by the fact that Section 5104 (a) applies to actions arising out of the negligent use or operation of a motor vehicle, whereas Section 5104 (b) applies to any action arising out of the use or operation of a motor vehicle."

"The application of the two sections are not mutually exclusive. In Stedman v. the City of New York, 107 AD2d 600 (1985), an accident victim who had received workers' compensation benefits brought a personal injury action against the owner/operator of the other vehicle, for that driver's negligent operation of their vehicle, and against the city of New York for its negligent maintenance of a traffic light. The electricians who serviced the traffic light were impleaded as third-party defendants. The Appellate Division, First Department, found that the forerunners to Section 5102 (a) and (b) applied separately to the defendants for the different claims (Stedman, 107 AD2d at 602)."

"In this action, because defendants Cooper Tire and Hercules Tire are not 'covered persons' within the meaning of the statute, and because their potential liability does not arise out of the negligent use or operation of a motor vehicle, the court finds that Insurance Law Section 5102 (b) applies to any settlement with Cooper Tire and Hercules Tire."

"However, although the limitation of Workers' Compensation Law Section29 (1-a) on the assertion of workers' compensation liens does not apply, on its own terms, to Insurance Law Section 5102 (b), Insurance Law Section5102 (b) is similarly limited. Although the statute [Section 5104 (b)] does not specify against which types of compensation such a lien may be asserted, it is well established in case law that a lien representing basic economic loss benefits paid to an insured can be asserted only against an economic damages award to an insured in a personal injury action, and not against a pain and suffering award (Allstate Ins. Co. v. Yetish Inc., 816 NYS2d 693, 693 [App. Term, 2d and 11th Jud. Dist., 2006], citing Aetna Cas. & Sur. Co. v. Jackowe, 96 AD2d 37, 42 [1983], Safeco Ins. Co. of America v. Jamaica Water Supply Co., 83 AD2d 427 [1981])."

"In Aetna Casualty and Surety Co. v. S. Siskind & Sons Inc., 209 AD2d 215 [1994], the court found that some portion of the subject settlement could be attributed to economic loss, as the insured's pleadings included allegations of such losses, and thus directed an apportionment hearing to ascertain the extent of reimbursement for benefits paid (compare Denison v. City of Rome, 294 AD2d 895, 895 [2002]['The State Insurance Fund failed to establish that the proceeds received by plaintiff were not in lieu of first-party benefits ... and thus failed to establish that it is entitled to a lien.']). In Aetna, the court noted that insureds should not be allowed to recover twice for their basic economic loss, and should not have to pay for the benefits designed to compensate for basic economic loss out of their compensation for pain and suffering (Aetna, 209 AD2d at 216). The policy behind the statutory scheme is that through the combination of no-fault benefits, workers' compensation benefits and third-party actions for non-economic losses, the victim can be made 'whole' again."

"Plaintiff in this action points out that he has not pled or particularized any claim for basic economic loss, and contends that he could not have recovered for any basic economic loss were the matter to go to trial. Because no portion of the settlement can be attributed to basic economic loss, any recoupment by Hereford for its lien would be payable out of plaintiff's recovery for non-economic damages. On these Facts, the court finds that the statutory scheme would be thwarted were the carrier permitted to exert a lien on what amounts to plaintiffs recovery for non-economic damages and Hereford's lien is hereby denied."

"Furthermore, the court also finds that the various requirements of Workers' Compensation Law Section 29 (5) do not apply. Workers' Compensation Law Section 29 (5) is designed to protect the interest of the workers' compensation carrier and its ability to recoup benefits paid, and it requires, inter alia, the approval of either the workers' compensation carrier or the court prior to the compromise of an action by the recipient of such benefits for the same injuries. The application of Section 29 (5), where the court has already found that Hereford can not exert a lien against plaintiff's recovery from the defendant tire companies, would present the awkward possibility of a workers' compensation carrier being able to bar a settlement on which it can not exert a lien. Therefore, the court finds that, on these Facts, the various requirements of Section 29(5) to protect the interests of the workers' compensation carrier do not apply.2"

"The court now turns to Taxi Wheels' motion to dismiss all claims against it pursuant to CPLR Section 3211 (a) (7), on the ground that the complaint fails to state a cause of action, or in the alternative, for summary judgment dismissal pursuant to CPLR 3212. Taxi Wheels contends that it can not be found liable under either theory asserted in the complaint. Taxi Wheels contends that it can not be found liable under a theory of products liability because Taxi Wheels did not manufacture, sell or distribute either the taxicab or the tire that exploded. Taxi Wheels also contends that it can not be found liable under a theory of negligence because Taxi Wheels had no duty to maintain the taxicab or its tires, and could not have known of any defect in the tire which exploded."

"In regards to a products liability claim, it is well established that liability may not be imposed for breach of warranty or strict products liability upon a party that is outside the manufacturing, selling or distributive chain (Smith v. City of New York, 133 AD2d 818, 819 [1987]). The courts have imposed strict liability against sellers who engage in product sales in the ordinary course of their business (see e.g. Sukljian v. Ross & Son Inc. 69 NY2d 89, 95 [1986]. The evidence presented by Taxi Wheels clearly establishes that Taxi Wheels is a manager of taxi medallions. Taxi Wheels is not engaged in the manufacture, selling or distribution of motor vehicles or tire, and it merely leased a taxicab to plaintiff as an adjunct to its principal business of managing taxi medallions. Furthermore, the court notes that plaintiffs opposition fails to even address its claim under products liability or plaintiff's motion to dismiss the same."

"To establish a prima facie case for negligence, a party must prove that (1) defendant owed a duty to the plaintiff, (2) a breach thereof, and (3) injury proximately resulting therefrom (Friedman v. Anderson, 23 AD3d 163 [2005]). The existence of a duty is, of course, an essential element of a negligence claim. Shante D. v. City of New York, 190 AD2d 356, 361 [1993], affd 83 NY2d 948 [1994]). In this action, plaintiff Alam and his partner Rafi had sole custody, possession and control of the taxicab during the lease period, pursuant to the lease agreement between Taxi Wheels.

When they weren't driving the taxicab, they parked it in the neighborhood where they resided. Pursuant to the lease agreement, plaintiff and his partner were responsible for all inspections, maintenance and repair of the vehicle. Plaintiff testified as to the lease agreement, and the responsibilities he and his partner assumed thereunder. Plaintiff also testified that after they obtained the taxicab from Taxi Wheels, they drove it six days per week, at approximately 130 miles per day, for approximately seven months prior to the accident without experiencing any problems with the tires.

If any issues arose concerning the safety or functioning of the vehicle, plaintiff and his partner were the only ones who had opportunity to become aware of such issues, and the only ones who had the obligation to address them."

Accordingly, it is ORDERED, that plaintiff's cross-motion to approve a settlement between plaintiff and defendants Cooper Tire and Hercules Tire, nunc pro tunc, is granted to the extent set forth herein; and it is further ORDERED, that defendant Cooper Tire and Hercules Tire's cross-motion to dismiss is deemed moot and denied without prejudice to renew, and plaintiff is directed to file a stipulation of discontinuance forthwith; and it is further ORDERED, that defendant Taxi Wheels' motion to dismiss is granted, and the Clerk of the Court is directed to enter judgment accordingly.

This constitutes the Decision, Opinion and Order of this Court.

**footnotes**

1. The exact amount of the settlement is confidential pursuant to a Stipulated Protective Order of Confidentiality executed between all parties and "so ordered" on August 10, 2005

2. Academically, the court notes that were it to permit Hereford to either quash plaintiff's settlement with the tire companies or approve the settlement and assert its lien, and the court were to then consider and grant the pending motion and cross-motion to dismiss, Hereford would still receive no reimbursement for benefits paid. The only consequence would be to deprive the parties of a settlement and force them to trial.

Lawrence N. Rogak is an insurance defense attorney in New York. He writes The Rogak Report, a daily insurance law newsletter, and his insurance law articles appear in several industry publications. For more information see www.Rogak.com. His new book, Rogak's New York No-Fault Law & Practice can be purchased by clicking here.

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