Grello v. Daszykowski , 58 A.D.2d 412 ( 1977 )

Margett, J.

The narrow issue in this case is whether a workmen’s compensation lien filed by respondent Public Service Mutual Insurance Company against the proceeds of any recovery had by the plaintiff in an underlying personal injury action arising out of an automobile accident should be vacated. In a larger sense, this case poses the question whether New York’s no-fault law operates to deprive persons seriously injured in the course of their employment of a portion of the total recovery to which they would previously have been entitled. If the question is, as 10 Appellate Division Justices have concluded thus far, to be answered in the negative, there remains an issue as to whether the no-fault law has effectively shifted a liability, previously borne by a tort-feasor’s liability insurance carrier, to the workmen’s compensation carriers. I would conclude that it has.

The instant case arises out of an automobile accident which occurred on April 14, 1974, while the plaintiff was acting within the scope of his employment. Plaintiff filed for both no-fault and workmen’s compensation benefits and has received moneys from both sources. Ironically, respondent Public Service Mutual Insurance Company was the carrier under both forms of coverage. Nevertheless, in accordance with the provisions set forth in the no-fault law (Insurance Law, § 671), medical expenses and a certain percentage of plaintiff’s loss of earnings were paid by respondent as workmen’s compensation carrier while a further percentage of plaintiff’s loss of earnings was paid by respondent in its capacity as no-fault carrier.

Plaintiff also commenced an action against the alleged third-party tort-feasor. Respondent filed a notice of lien against any recovery and, thereafter, plaintiff moved to vacate the lien. Plaintiff contended that since the total of his health service expenses and loss of earnings did not exceed $50,000, he could not obtain any recovery from the alleged tort-feasor for such health service expenses or loss of earnings. Since respondent had reimbursed plaintiff solely for such health service expenses and loss of earnings, it was argued that no lien could attach to a recovery which amounted to compensation for noneconomic loss—i.e. "pain and suffering”.

Special Term denied plaintiff’s motion, but opined that "the plaintiff herein is placed in an unreasonable and inequitable position by the strict application of §29, subd. 1 of the Workmen’s Compensation Law and the relevant Sections of the Insurance Law.” Rectification was deemed a matter for the Legislature. While I agree that legislative consideration is in order, I believe that such consideration should be directed to the apportionment of risks as between the various categories of insurers. If, as respondent suggests, the current apportionment of those risks is undesirable because of economic considerations, the burden of suffering the current state of affairs should be borne by the compensation carriers—and in a broader sense by society at large—rather than by the injured individual victims of automobile accidents.

Both the Workmen’s Compensation Law and the Comprehensive Automobile Insurance Reparations Act (no-fault law) are ultimately concerned with the compensation of the injured party. Workmen’s compensation is designed to shift the risk of loss of earning capacity caused by industrial accidents to industry and ultimately the consumer, regardless of fault (Matter of Wolfe v Sibley, Lindsay & Curr Co., 36 NY2d 505). It is intended to secure speedy, certain and adequate provision for the support of dependents, and to give every workman in specified trades compensation for injury received while in the course of his employment (Skakandy v State of New York, 188 Misc 214, affd 272 App Div 153, affd 298 NY 886). When it was first enacted, in the early part of this century (L 1913, ch 816), the Workmen’s Compensation Law represented a revolutionary departure from the fault system of traditional tort liability, which provided the exclusive means of redress at that time. But by the same token, workmen’s compensation was conceived and existed within that traditional system; of necessity certain segments of the Workmen’s Compensation Law were geared toward that system. The lien against a claimant’s recovery in a third-party action acknowledged the fact that third-party actions based on fault were intended to compensate an injured party for his entire loss—both economic and noneconomic. Since the injured party had already been compensated for a portion of that, which he would recover from the third-party tort-feasor, it was entirely just and appropriate for the compensation carrier to regain that which it had previously paid; otherwise the injured party would be doubly compensated (Matter of Amo v Empsall-Clark Co., 9 AD2d 852; Matter of Berenberg v Park Mem. Chapel, 286 App Div 167).

The concept of no-fault automobile insurance evolved in large part from the social success of workmen’s compensation (James, The Columbia Study of Compensation for Automobile Accidents: An Unanswered Challenge, 59 Col L Rev 408; Malone, Damage Suits and the Contagious Principle of Workmen’s Compensation, 12 La L Rev 231). It was said by the Governor, upon his approval of New York’s enactment of no-fault, that the law "assures that every auto accident victim will be compensated for substantially all of his economic loss, promptly and without regard to fault” (NY Legis Ann, 1973, p 298). But clearly, although many of the same principles underlie both workmen’s compensation and no-fault, the latter notion is more than a mere offshoot of the fault system; it is a permutation of the very system itself.

Thus, "[njotwithstanding any other law, in any action by or on behalf of a covered person against another covered person for personal injuries arising out of negligence in the use or operation of a motor vehicle in this state, there shall be no right of recovery for non-economic loss, except in the case of a serious injury, or for basic economic loss” (Insurance Law, § 673, subd 1 [emphasis supplied]). "Basis economic loss” is defined, in essence, to include (a) all reasonable and necessary medical expenses, (b) loss of earnings up to $1,000 per month for not more than three years from the date of the accident causing the injury and (c) all other reasonable and necessary expenses incurred, up to $25 per day for not more than one year from the date of the accident causing the injury (Insurance Law, § 671, subd 1). Since no action may be brought for such "basic economic loss”, the injured victim is reimbursed for basic economic loss by means of "first party benefits” payable by his own insurer, if he is a motorist, or by the insurer of the car that struck him, if he is a pedestrian. These "first party benefits” are reduced, however, by (a) 20% of those lost earnings which are considered basic economic loss,¹ (b) "amounts recovered or recoverable on account of such injury under state or federal laws providing social security disability benefits, or workmen’s compensation benefits”² and (c) "any amounts deductible under the applicable insurance policy” (Insurance Law, § 671, subd 2 [emphasis supplied]). First-party benefits are promptly payable to the injured party and are overdue if not paid within 30 days after the claimant supplies proof of the fact and amount of loss sustained (Insurance Law, § 675, subd 1).

Under the no-fault system then, the injured victim is promptly and substantially compensated, quite without regard to any considerations of negligence, for what is aptly termed basic economic loss. Traditional tort concepts remain viable only where the injured party sustains "economic” losses in excess of or of longer duration than "basic economic loss”, or where a "serious” injury has been sustained (e.g., death, dismemberment, significant disfigurement, a compound or comminuted fracture, reasonable and customary medical expenses in excess of $500) (Insurance Law, § 671, subd 4). In the former case, an action can be brought to recover the amount by which actual economic losses exceeded or were of longer duration than "basic economic loss”. In the latter case, an action can be brought to recover for "non-economic loss”— "pain and suffering and similar non-monetary detriment” (Insurance Law, § 671, subd 3).

These comprehensive changes in the system of compensation for automobile accident victims are underscored by the fact that a no-fault carrier may not assert a lien against the proceeds of any recovery obtained by the injured party from a tort-feasor.³ The reason for this is so obvious as to be elementary; since an injured person is precluded from recovering anything from a tort-feasor for "basic economic loss”, and since no-fault compensation covers only "basic economic loss”, any lien imposed by a no-fault carrier would deprive the injured party of a segment of the total indemnification provided by law. In short, a seriously injured person or one with losses in excess of or of greater duration than "basic” economic losses, could not be made whole.

The position advanced by respondent—that a workmen’s compensation lien is valid as against any recovery from a third party—is untenable in the automobile liability context by virtue of the massive and comprehensive restructuring of the law in that area. In the case at bar, respondent compensated plaintiff only for medical expenses and lost earnings.⁴ It appears that all compensation came within the statutory definition of "basic economic loss”.⁵ It is patent that respondent seeks to attach a lien to potential benefits representing a loss for which it never compensated the plaintiff. Such a result finds no justification in law or in reason.

It is clear that by reason of the enactment of the no-fault law, as construed by both a majority of this court and by the Third Department in Matter of Granger v Urda (54 AD2d 377), respondent, and workmen’s compensation carriers in general, have "lost” a potential lien in certain categories of cases. But it is not the plaintiff who benefits at the respondent’s expense. Rather, any "direct” loss incurred by respondent inures to the benefit of the alleged tort-feasor’s liability carrier. The facts of the Granger case illustrate this quite graphically.

Mr. Granger sustained personal injuries in a work-related automobile accident. He received workmen’s compensation payments in the sum of $7,832.72 and medical payments from the compensation carrier in the sum of $1,090.84, for a total of $8,923.56. In a negligence action against the third-party tortfeasor, Granger was awarded $52,759.52 by the jury. Pursuant to the no-fault law⁶ the trial court deducted from this verdict the sums of $10,010 for lost wages, $10,608.31 for future wages lost until three years after the date of the accident and $1,003.98 for medical services. These sums, totaling $21,622.29 represented "basic economic loss” for which Granger could not recover from the tort-feasor because of the prohibition contained in section 673 of the Insurance Law. The resulting judgment in the sum of $31,137.23 entered on behalf of Granger was thus comprised solely of damages for pain and suffering and lost earnings commencing three years after the date of the accident. Granger’s workmen’s compensation carrier claimed a lien of $8,923.56 against this $31,000 judgment, which lien was held to be invalid.

If one analyzes the aforesaid facts, it is clear that the compensation carrier’s "loss” directly benefited the tort- feasor’s liability insurer. The amount of the nearly $9,000 lien was part of the "paper” deduction made from the verdict in arriving at the judgment. This shift in insurance liabilities formed the basis for the two dissenting opinions.

Mr. Justice Greenblott, in a dissenting opinion, indicated that the "loss” should fall on Granger’s no-fault carrier. He arrived at this result by concluding that where there is a third-party recovery by one who has received workmen’s compensation benefits, there are in practice no compensation benefits "recovered or recoverable” within the meaning of paragraph (b) of subdivision 2 of section 671 of the Insurance Law. Compensation benefits are not "recovered or recoverable” because of the inviolability of the compensation lien. Hence, the set-off provision contained in paragraph (b) of subdivision 2 of section 671 does not apply where there is a third-party recovery. Mr. Justice Greenblott concluded that Granger "should be required to proceed against the no-fault carrier to enforce his rights against it” (Matter of Granger v Urda, 54 AD2d 377, 382, supra).

Mr Justice Herlihy, in his dissenting opinion, stated (p 683) that the "loss” should fall on the tort-feasor’s liability carrier. He contended that "[a]s a matter of law the statutory prohibition in section 673 of the Insurance Law [prohibiting suits for basic economic loss] should not be applied to actions brought by a recipient of workmen’s compensation benefits, to the extent of a workmen’s compensation lien on any recovery.” Accordingly, Mr. Justice Herlihy concluded (p 683) that "[t]he error in this case is in regard to the judgment entered in the action against * * * [the tort-feasors] and any relief * * * [Granger] might seek will have to be in regard thereto and not against a no-fault insurance carrier.”

Although it may be desirable to shift the "liability” now borne by workmen’s compensation carriers to no-fault or automobile liability insurers, I am unable to conclude that such a result is possible without tremendously straining the language and scheme of the no-fault law as it now exists. More importantly, any attempt to shift the respective liabilities within the framework of the current law would project the injured victim into an uncharted and interminable morass of legal maneuvering.

As has already been noted, paragraph (b) of subdivision 2 of section 671 of the Insurance Law provides that first-party benefits payable by no-fault carriers shall be reduced by amounts recovered or recoverable as workmen’s compensation benefits. Since the statute conditions this setoff upon mere availability and not upon actual receipt, I fail to see how benefits which are "recoverable” become any less so merely because the injured person eligible for such benefits might have to refund them after a recovery from a third-party tortfeasor.⁷ No doubt, this very point would be strenuously argued by any no-fault carrier being sued by an injured person who had been compelled to remit workmen’s compensation benefits to the compensation carrier. The injured party would then be faced with the prospect of lengthy litigation concerning this point.

Likewise, any adjustment to the amount recoverable in a tort action would be in complete contravention of the statutory scheme limiting recovery (see Insurance Law, § 673, subd 1). A liability insurance carrier could be expected to actively resist any such upward revision of its liability. Even more significantly, settlement negotiations would (at least prior to an ultimate Court of Appeals adjudication of the question) be hampered by a state of uncertainty.^{7 8} Since one of the basic purposes of the no-fault law was the elimination of court congestion (see Governor’s Memorandum, NY Legis Ann, 1973, p 298), such a result would be undesirable.

Another fundamental purpose of the no-fault law was to provide substantial premium savings to all New York motorists (Governor’s Memorandum, supra). It appears that, in part at least, such savings have been effected by shifting part of the loss previously borne by the automobile liability carriers to the workmen’s compensation carriers. If this apparent shift is undesirable, it can be readily corrected by the Legislature.⁹ Pending such corrective action, both the Workmen’s Compensation Law and the no-fault law should be construed most favorably to the injured victims of automobile accidents.

Accordingly, we hold that insofar as automobile liability recoveries are concerned, a workmen’s compensation carrier may attach a lien only to the extent that workmen’s compensation benefits exceed or are of longer duration that a victim’s "basic economic loss”, as that term is defined in subdivision 1 of section 671 of the Insurance Law.

1 . To illustrate the operation of the law with respect to lost earnings, suppose an injured party earned $2,000 per month. One thousand dollars would constitute basic economic loss for which no action could be maintained. One thousand dollars would be recoverable in an action at law. Of the $1,000 which represents basic economic loss, first-party benefits of $800 (80%) would be payable.

2 . The use of the term "recoverable” indicates that the no-fault insurer may deduct the amount of such benefits upon a mere showing of their availability; the right of the insurer to deduct is not contingent upon their actual receipt. In essence, the Legislature has made the workmen’s compensation carrier the primary carrier. An injured party may not, therefore, "elect” between workmen’s compensation benefits and no-fault benefits.

The Connecticut, Minnesota, New Jersey, and Utah acts are of similar effect (Conn Gen Stat Rev § 38-333, subd [c]; Minn Stat Ann, § 65B.61, subd 2; NJ Stat Ann, § 39:6A-6; Utah Code Ann, § 31-41-7, subd [3], par [a]). New Jersey’s provision has been described as a trap for the unwary claimant who fails to apply for workmen’s compensation benefits (Schermer, Automobile Liability Insurance, § 5.03; see Crystal, No Fault—One Year Later, 97 NJLJ 225 [1974]).

3 . This is true where the injured party who has obtained no-fault benefits recovers from a "covered person”—in essence, any New York motorist (with the exception of motorcyclists) who obeys the law and carries the required insurance protection, and any nonresident motorist who has no-fault coverage for excursions into New York. It should be noted that no-fault carriers who have compensated injured person do have a lien where the injured person recovers from a "non-covered” person (Insurance Law, § 673, subd 2) but no limitations are imposed on the damages that may be recovered from a "non-covered” person. Thus a suit against a noncovered person is, in all respects, governed by traditional fault principles and full recovery (for all economic and noneconomic loss) is possible.

4 . Although it appears that plaintiff received scheduled loss compensation on the basis of a partial loss of use of his legs and right hand, and a lump-sum settlement on the basis of facial disfigurement, it has been consistently held that the purpose of a schedule award is to compensate the employee for immediate or prospective loss of earnings or earning capacity (see Matter of Marhoffer v Marhoffer, 220 NY 543; Matter of Wilkosz v Symington Gould Corp., 14 AD2d 408, affd 14 NY2d 739). In facial disfigurement cases the same theory and the relationship between any kind of compensation and loss of earnings or earnings capacity, has been recognized (Matter of Wilkosz v Symington Gould Corp., supra).

5 . It is undisputed that plaintiff was earning less than $1,000 per month and that the total of his health care expenses and loss of earnings (including the scheduled loss compensation) did not exceed $50,000. It does appear that plaintiff’s scheduled loss compensation was spread out in weekly payments over the period April 15, 1974 until May 17, 1977. To the extent, if any, that such payments represent loss of earnings for a period subsequent to three years from the date of the accident, they are recoverable in a tort action and are subject to the compensation carrier’s lien.

6 . Subdivision 3 of section 673 of the Insurance Law permits "basic economic loss” to be pleaded and proved even where there is no right to recover for said basic economic loss, "to the extent that it is relevant to the proof of noneconomic loss.” Thus jury verdicts under the no-fault system must be reduced by the amount of a plaintiff’s "basic economic loss”. The reduction is "on paper” and results in an appropriate figure which is reduced to judgment.

7 . If the set-off provisions in paragraph (b) of subdivison 2 of section 671 of the Insurance Law applied only to amounts "recovered”, the argument that the no-fault carrier could not claim a setoff where the compensation lien resulted in a remittal of all compensation benefits paid might be tenable. The net result would be that nothing had been recovered.

8 . Under the no-fault law, it is clear that the liability insurer need compensate the injured victim only for noneconomic loss and economic loss in excess of basic economic loss. While compensation for noneconomic loss cannot be quantified with any high degree of precision, practice teaches us that the dynamics of the negotiation and settlement process will insure that compensation for noneconomic loss will be just that, in practice as well as in theory.

9 . The compensation carrier could, for example, be included with the no-fault carriers in section 674 of the Insurance Law. That section provides that any insurer liable for the payment of first-party benefits (i.e.—no-fault carriers) "shall have the right to recover the amount of such benefits so paid from the insurer of any other covered person if and to the extent that such other covered person would have been liable, but for the * * * [limitations imposed on law suits by the no- fault law],to pay damages in an action at law.” (Insurance Law, § 674, subd 1.) The right of recovery must be pursued through arbitration (Insurance Law, § 674, subd 2) and the intramural adjustment of losses thus provided is independent of the liability policy actually carried by the tort-feasor since "[t]he liability of an insurer imposed by this section shall not affect or diminish its obligations under any policy of bodily injury liability insurance.” (Insurance Law, § 674, subd 3.)