Senate Bill S2393

                                 BILL NUMBER:  S2393

 TITLE OF BILL :
An act to amend the civil practice law and rules, in relation to the
impact of collateral source payments upon tort claims for personal
injury, property damage or wrongful death, and upon related
subrogation claims; and in relation to equalizing the treatment of
collateral sources in tort actions; and repealing certain provisions
of the civil practice law and rules relating thereto

 PURPOSE :
This legislation seeks to resolve certain significant problems which
have arisen in the context of settlements because of two gaps in the
statutory language: one regarding settlements of personal injury and
wrongful death actions, and the other regarding subrogation claims
that are from the same personal injury or wrongful death action. In
addition, there is an anomaly in the treatment of collateral sources
in tort actions in that, unlike private employers and all other
defendants, public employers, when sued by their employees, are not
entitled to have awards for lost future earnings offset by collateral
sources of compensation, such as an accident disability pension, that
the plaintiff will receive to replace those same lost earnings.

 SUMMARY OF PROVISIONS :
This measure would amend CPLR 4545 to clarify that:

              

1) when a case covered under the statute settles, collateral source
payors may seek reimbursement only when such a right is provided by
statute and as such, this measure seeks to foreclose what it believes
the Legislature, when enacting the statute, never intended;

2) the same standard used in tort actions against private defendants
applies to such actions against public defendants and the bill would
allow collateral sources to offset damage awards for future costs or
expenses in actions against public employers to prevent double
recoveries. (Currently, while past and future awards in cases against
private defendants may be reduced by collateral sources, in cases
against public employers, under subsection (b), only past awards may
be so reduced);

3) the same approach is to be taken as to all defendants under the
current subsection (c), which requires an offset for the most common
source of collateral sources, whether or not funded by the employer,
and reduces the offset by the amount paid by the plaintiff for
premiums for the two year period immediately prior to the accrual of
the action. (Currently, personal injury awards in actions against
public defendants are offset under subsection (b) only by collateral
sources "provided or paid for, in whole or in part, by the public
employer." The offset for collateral sources is reduced in such
actions by the amount of any contributions made by the public employee
for the collateral source benefit);

4) Section 4545 applies in wrongful death actions alleging medical
malpractice as it does in all other medical malpractice and wrongful
death actions.

 EXISTING LAW :
CPLR 4545 provides that a plaintiff who has a personal injury,
wrongful death or property damage action cannot recover damages for
any expense or loss that was or will be covered by a collateral
source, such as his or her health insurance. The statute, which for
historical reasons has three different subdivisions (one for medical
malpractice actions, one for actions against public employers, and one
for all other actions), exempts those collateral sources that
constitute liens against the plaintiffs recovery (e.g. workers'
compensation payments).
 JUSTIFICATION :
CPLR 4545 originally was enacted in response to the medical
malpractice crises of the 1980s. It was hoped that by precluding
plaintiffs from recovering for those damages compensated by other
sources, recoveries could be reduced and malpractice premiums
significantly lowered. Another legislative goal was to avoid
"windfall" "double recoveries." Later, because these goals were
considered salutary in other types of cases, the Legislature made the
statute applicable to all previously unaddressed property damage,
personal injury and wrongful death actions.

In the small minority of cases that actually go all the way to verdict
and judgment, the statute appears to work fairly well. However,
significant problems have arisen in the context of settlements because
of two gaps in the statutory language: one regarding settlements of
personal injury and wrongful death actions, and the other regarding
subrogation claims that are from the same personal injury or wrongful
death action.

In addition, there is an anomaly in the treatment of collateral
sources in tort actions in that, unlike private employers and all
other defendants, public employers, when sued by their employees, are
not entitled to have awards for lost future earnings offset by
collateral sources of compensation, such as an accident disability
pension, that the plaintiff will receive to replace those same lost
earnings.

Regarding the "subrogation gap," although the Legislature specified
that a plaintiff could not recover for a loss that had been reimbursed
by a collateral source payment that did not constitute a lien on the
recovery, the Legislature did not expressly say that the health
insurer or other collateral source payor could not sue in subrogation
for such damages.

In this context, familiar principles of common law hold that the
subrogee (a party who asserts a subrogation claim) "stands in the
shoes" of the party from which the claim arises (the subrogor). Under
this general principle, the subrogee's rights derive from and cannot
be greater than those of the subrogor. Thus, where a plaintiff cannot
himself or herself assert a claim against a third person, nor could
the plaintiffs insurance company (the subrogee) assert that claim.

Although the legislative history is silent on this point, we believe
it likely that the Legislature did not address subrogee rights because
it knew that their rights are derivative and assumed their rights
would automatically be diminished along with those of the plaintiff.
Yet, the statute did not expressly say that such a principle was
desired or expected. There is, in consequence, a split of authority as
to the impact of the statute on subrogation claims.  There is some
authority for the proposition that an insurer (or any other entity
that made collateral source payments to the plaintiff) can sue the
tortfeasor for the very damages that the statute prevents the
plaintiff from recovering (see e-g. Kelly v Seager, 163 AD2d 877 4th
Dept 1990; Excellus Health Plan, Inc. v Federal Express Corp., 5 Misc
3d 727 Supr Ct Onondaga Co 2003, afford 11 Add 948 4th Dept. 2004).
But there is also some authority for the opposite view that the
Legislature intended doctors, municipalities and other groups who
complained of escalating tort liability costs to achieve real relief
(see Oxford Health Plans, Inc. v Augustine Deli and Caterers, Inc.,
282 AD2d 728 2d Dept 2001).

Of course, if the statute provided or were construed as providing that
the plaintiffs subrogee could recover funds from the defendant even
when the plaintiff was personally barred from doing so, any savings
achieved by the defendant would be temporary and illusory, for the
defendant would ultimately have to pay the same amount of money that
it would have been required to pay if the statute had never been
enacted. This concern that the "subrogation gap" could effectively
thwart the statutory intent is now particularly acute by virtue of two
recent decisions in which the Court of Appeals implied, without
actually reaching the merits, that such a subrogation claim i.e. a
claim in which the subrogee seeks to recover damages that the subrogor
would be barred from recovering by current CPR 4545 was not merit less
on its face (see Allstate Ins. Co. v Stein, 1 NY3d 416 2004; Blue
Cross & Blue Shield of New Jersey, Inc. v Philip Mon-is USA, Inc., 3
NY3d 200 2004).

Apart from raising concerns as to whether tort defendants may be
denied a benefit that the Legislature intended they have, the
"subrogation gap" has led to an array of procedural complications that
threaten to increase litigation expense (both for plaintiffs and
defendants), inhibit settlements, and delay disposition of personal
injury and wrongful death actions. Reflective of the underlying
uncertainty as to whether the plaintiffs subrogee may now have greater
rights than the plaintiff himself' or herself, there is also
uncertainty as to whether such subrogees can formally intervene into
ongoing personal injury and wrongful death actions, and, effectively
veto any settlement that does not include full repayment of whatever
sums were previously paid to the plaintiff Some years ago, the Third
Department held that subrogees could not inject themselves into the
litigation or "veto any result that was not favorable to their
interest" (Berry v St. Peter's Hosp., 250 AD2d 63, 68 3d Dept 1998)
However, only last year, the Fourth Department twice ruled, each time
by a 3 to 2 vote, to the contrary (see Kaczmarski v Suddaby, 9 AD3d
847 4th Dept 2004; Omiatek v Marine Midland Bank, N.A., 9 AD3d 831 4th
Dept 2004). Additionally, the Court of Appeals suggested in 2004 in
dictum that intervention is possible (see Allstate, I NY3d at 423).

If the statute provided or was construed as providing that subrogees
could intervene in the underlying action or that they could veto any
settlement not to their liking, then a simple "one-on-one" case
involving a two-car collision or a trip over a pavement defect could
become a five-party action if three different insurers or other payors
had covered parts of the plaintiffs various resultant expenses or
losses. In such event, the defendant would likely end up paying
exactly what it would have paid had the statute never been enacted in
the first place, except that the defendant and the plaintiff, and the
court as well, would now find it more costly to litigate the claim.

Regarding the so called "settlement gap," although the statute
precludes plaintiff from obtaining a "double recovery" at the trial,
it says nothing about whether plaintiff can obtain a "double recovery"
by way of settlement. We suspect that the Legislature focused solely
on the trial because, 1) it assumed that no rational defendant would
ever pay more in settling a claim than he or she could be forced to
pay at the trial itself, and 2) there was no perceived need to
restrict the parties' freedom to settle actions.

The "settlement problem" occurs when the plaintiff settles an action
and the plaintiffs subrogee then proceeds against the plaintiff for
repayment of funds that plaintiff was not legally entitled to recover
from the defendant and which therefore would not have been included in
any settlement. The problem arises from a Court of Appeals' ruling, in
which the court held that the statute does not govern settlements,
with the consequence that settlement of the underlying suit can give
rise to an ancillary dispute as to whether the settlement the
plaintiff obtained did or did not include compensation for those funds
that plaintiff could not have collected at a trial (see Teichman v
Community Hosp. of Western Suffolk, 87 NY2d 514 1996).

As to the treatment of collateral sources, this bill is necessary to
eliminate an anomaly created by the Court of Appeals' recent decision
in IAZZETTI V. CITY OF NEW YORK, 94 N.Y.2d 183 (1999), which
interpreted CPL.R 4545 to deny a public employer (and no other
defendant) the benefit of any collateral source offset, including
accident disability pension benefits subsidized by the employer,
against future economic damages awarded to employees in tort actions.
All other defendants may continue to use employer-subsidized accident
disability pensions and similar collateral sources to offset awards
for future economic loss. The various Sections of CPLR 4545 were
enacted to eliminate the common law collateral source rule, which
prohibited tortfeasors from reducing their obligations to plaintiffs
by the amount of benefits the plaintiff receives from other sources,
such as insurance. The statute's purpose is to eliminate the windfall
of double recoveries to plaintiffs which often resulted from the
common-law collateral source rule, while still ensuring that
uncompensated losses are fully compensated.

CPLR 4545 has been repeatedly amended to expand its scope. Originally
enacted as CPLR 4010, to allow the admissibility of evidence
concerning past collateral source payments in medical malpractice
cases. it was amended effective July 1, 1981, to make such a reduction
mandatory and to give the power to make that reduction to the court.
CPLR 4010 was subsequently repealed, and its text transferred to CPLR
4545(q), along with the present text of (b), which extended the class
of cases in which such an offset for past collateral sources was
mandatory to cases brought against public employers. L.. 1984. c. 701.
Subdivision (a) of the section was amended by L. 1985 c. 294,
extending the scope of the offset to future losses whose replacement
or indemnification could be demonstrated "with reasonable certainty."
This extension of the scope of the offset was expressly extended to
"any action" in L..  1986, c. 220. Each amendment has expanded the
applicability of the collateral source doctrine to further the policy
determination that it is inequitable to allow a plaintiff double
recovery, particularly of public monies.

Notwithstanding the trend to eliminate the windfalls that result from
the common law rule, and to safeguard public monies, presently all
defendants except public employers may offset against awards for
future costs or expenses any amounts that would with reasonable
certainty be replaced or indemnified.

Public employers' unique inability to offset future economic loss is a
consequence of the Court of Appeals' IAZZETTI decision, which holds
that the proper statutory predicate for 'collateral source reductions
in personal injury and wrongful death actions brought by public
employees against their employers is CPLR 4545(b), rather than CPLR
4545 (c). Section 4545 (b) permits an offset only as to past costs and
expenses, in contrast to the subsequently enacted 4545(c), applicable
to all other defendants, which requires an offset as to past and
future costs and expenses. In IAZZETTI, the Court of Appeals concluded
that public employers are governed exclusively by CPLR 4545(b), and
therefore are limited to an offset against past economic loss.

Three cases, including IAZZETTI, illustrate the harm public entities
will be caused by this Court of Appeals' decision: In IAZZETTI, plain-
tiff, a forty-year-old Department of Sanitation employee, slipped and
fell on the floor of the garage where he worked, injuring his back. As
a result, he was retired on an Accident Disability Retirement pension,
which provides him with three-fourths salary benefits, tax free, for
the remainder of his life, Based on plaintiffs life expectancy of 76,
he will receive $1,136,150 from his City pension. Then, from his
personal injury suit against the City, plaintiff was awarded $1.2
million dollars to compensate him for past and future lost earnings
and loss of ordinary pension benefits, the very same loss that the
City pension will replace. One million of the $1.2 million was awarded
in compensation for future lost earnings and future lost pension
benefits. Since plaintiff was found 20% responsible for the happening
of the accident, he will receive $800,000 of the $1 million awarded
for future economic loss. Thus, as a result of the Court of Appeals'
decision in this case, the plaintiff will now receive both $1.1
million in tax-free pension benefits over the remainder of his life,
and an $800,000 tax-free jury award meant to compensate him for the
same loss.

In CAIAZZO V CITY OF NEW YORK, plaintiff, a forty-four-year-Old
Department of Sanitation employee, injured his back and knee due to
the condition of the floor in his work area. As a result of his
injuries, he was retired on an Accident Disability Retirement of
$10,680 annually. He also receives Social Security Disability payments
of $12,600 each year. In addition, the jury awarded him $3,565,000 in
his personal injury action against the City and allocated $1.1
million, almost one-third of that award, to compensate plaintiff for
future economic loss for 31 years. If the City were a private
defendant, it would have been entitled to a setoff of $721,680
(combined future pension and social security disability payments over
31 years) against the $1.1 million award for future economic loss,
leaving $238,320 in future economic damages to be paid. Under IAZZETTI
the $1.1 million jury award stands unreduced by the $721,680 in
tax-free payments plaintiff will receive from his pension and social
security disability payments.

In HERRERA V. CITY OF NEW YORK, plaintiff, an NYPD detective was
injured when he was struck by an unmarked police vehicle when he ran
out onto the service road of the eastbound Grand Central Parkway in
pursuit of robbery suspects fleeing on foot.  Following the accident,
he was retired on an Accident Disability Retirement pension of
54,359.18 monthly. 1-k also receives monthly Social Security
Disability benefits of 51,237. After a reduction by the trial judge,
plaintiff recovered a verdict of $3,483,,000 in his personal injury
action against the City. The future lost earnings award amounted to
$750,000 over a 10-year period. The total of future pension benefits
and Social Security Disability payments to be paid over the same 10
years would be $690,117. If it were a private defendant. the City
would have been liable to pay 559.882. Under IAZZETTI, the HERRERA
plaintiff is compensated twice for the same loss and receives an
additional $750,000.

As demonstrated above, the Court of Appeals' decision in IAZZETTI will
be both unfair and costly. Solely because the defendant is a public
employer, plaintiffs receive windfalls by double compensation for the
same economic loss. The City pays twice, first through the pension,
and then through the personal injury award.

Applying IAZZETTI to only the three cases discussed above results in
an increase in costs to the City of S2,271,680. There are
approximately 938 cases brought by uniformed service employees
currently pending against the City. These cases pose a potential
liability of $166 million, a substantial portion of which is for
future economic losses that doubly compensate city uniform workers who
are also receiving accident disability pensions.

The Court of Appeals' decision in IAZZETTI, by narrowly construing the
1986 amendment to CPLR 4545, has left public employers, and thus the
public fisc, in a position inferior to all other defendants. This
result is solely attributable to the piecemeal enactment and amendment
of this section. The Legislature should correct this anomaly and
standardize the treatment of collateral sources.

To address the above-noted problems, we propose to amend CPLR 4545 to
provide that:

1) The only payments as to which the collateral source payor may seek
reimbursement are those payments as to which there is a statutory
right or reimbursement (such as for Medicaid, Medicare, or workers'
compensation payments);

2) By entering into a settlement agreement, the plaintiff shall not be
considered to have taken an action in derogation of the contract or
subrogation rights of the collateral source payor; and

3) It will be conclusively presumed that a settlement does not include
collateral Source payments that could not be recovered at trial.

4) Subdivisions a and b, which govern the offset of damages for
collateral sources in medical malpractice actions and against public
defend- ants, respectively, are repealed, leaving in effect only the
current subdivision (c) of the section, which governs "any action for
personal injury, injury to property or wrongful death," and allows all
defendants in such actions to offset against awards for past and
future costs and expenses any amounts which have been or will be
replaced by past or future payments from collateral sources, such as
insurance or disability pensions. The proposed amendment thus
standardizes treatment of collateral sources by requiring that they be
offset as to past and future awards in medical malpractice actions and
all other personal injury and wrongful death actions, regardless of
the identity of the defendant.

5) Subdivisions (d) and (e) of Rule 4111 are repealed and subdivision
(b) of section 4213 is amended so as to eliminate the current
differentiation in those subdivisions among medical malpractice
actions, actions against public employers and other tort actions in
prescribing the requirements for itemized verdicts-and judicial
decisions.

The proposed amendments are intended to eliminate confusion as to what
constitutes a collateral source payment for purposes of section 4545;
to make it clear that a collateral source payor may seek reimbursement
only where there is a statutory right; and to ensure that collateral
sources are offset for all defendants as to both past and future
awards.

While the current statute specifically identifies certain kinds of
collateral source payments as illustrations of the payments that may
fall within the, statute's scope, and while the proposed amendment
entails the deletion of that list, this was simply because the merely
illustrative list becomes unnecessary once the subject class is
clearly defined. Under the measure, however, the specified examples
would continue to be treated as collateral sources subject to offset
except to the extent any of them were subject to statutory
reimbursement to the payor.

The final two sentences have been added to make it clear that the
plain- tiff may prove the amount of the particular category of loss at
trial, and that the deduction will be made following the verdict. This
represents not a change, but a clarification of existing law.

This measure could reduce state and municipal liability in certain
cases in which the State or its subdivisions is sued in tort. The
measure should, by reducing disincentives to settlement. also reduce
the burdens on the courts. Finally, the measure should reduce state
and municipal litigation costs in certain cases in which those
entities are defend- ants. The measure would take effect immediately
and affect all cases not yet reduced to judgment.

 LEGISLATIVE HISTORY :
2007-2008: S.5128
2006: S.8429 in Senate Rules

 FISCAL IMPLICATIONS :
None.

 LOCAL FISCAL IMPLICATIONS :
None.

 EFFECTIVE DATE :
Immediately and shall apply to all actions and proceedings pending on
or commenced after such date.