Senate Bill S2857

                                 BILL NUMBER:  S2857

 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


 JUSTIFICATION :
This measure would amend CPLR 4545 to clarify that, when a case
covered under the statute settles, collateral source payors may seek
reimbursement only when such a right is provided by statute. As such,
the amendment is intended to foreclose results which it believes the
Legislature, when enacting the statute, never intended.

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 plaintiff's recovery (e.g., workers'
compensation payments).

              

The statute originally was enacted in response to the medical
malpractice crises of the 1980's. 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.

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 those damages.

In this context, familiar principles of common law hold that a party
who asserts a subrogation claim, the subrogee, "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. This would mean that, 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 that it is likely that the Legislature did not
address subrogees' rights because it knew that their rights are
derivative and assumed that 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 (Sup Ct Onondaga Co,
2003), aff'd 11 AD3d 948 (4th Dept 2004). But there is also some
authority for the opposite view, the view that the Legislature
intended that the doctors, the municipalities, and the other groups
who complained of escalating tort liability costs achieve real relief.
See Oxford Health Plans, Inc v Augustino 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 CPLR 4545) was not
meritless on its face. Allstate Insurance Company v Stein, 1 NY3d 416
(2004); Blue Cross and Blue Shield of New Jersey, Inc. v Phillip
Morris 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 plaintiff's 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).
More recently, however, the Fourth Department twice ruled, each time
by a 3 to 2 vote, to the contrary. Kaczmarski v Suddaby,9 AD3d 847
(4th Dept 2004); Omiafek v Marine Midland Bank, NA., 9 AD3d 831 (4th
Dept 2004). Additionally, the Court of Appeals suggested in 2004 (but
only in dictum) that intervention is possible (Allstate v Stein, 1
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-an-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 plaintiff's various resultant expenses or
losses. In such event, the defendant would likely end up paying
exactly what it would have paid had the statue 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 plaintiff's 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 Teichman v
Community Hosp. of Western Suffolk, 87 NY2d 514 (1996).

To address the above-noted problems, this measure would 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 of 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.

The amendments to subdivisions (a), (b) and (c) are intended to
eliminate confusion as to what constitutes a collateral source payment
for purposes of section 4545, and make it clear that a collateral
source payor may seek reimbursement only where there is a statutory
right. 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 amendment proposed
in this measure deletes 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 of subdivisions (a), (b) and (c) have been
added to make it clear that the plaintiff 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 defendants.

 LEGISLATIVE HISTORY :
S.5861/A.9327 - 2007-08

 FISCAL IMPLICATIONS :
None.

 EFFECTIVE DATE :
This act shall take effect immediately and shall apply to all trials
and settlements after such effective date.