Is there a $50,000.00 “Carve-Out” to a Workers’ Compensation Section 29 Lien When the Underlying Accident Occurs Outside the State of New York?

When an accident occurs outside the State of New York the $50,000.00 “carve-out” under New York Insurance Law §§ 5102 and 5104 does not apply to a Workers’ Compensation Law Section 29 lien.

The seminal case setting forth this bright-line rule is McHenry v. State Ins. Fund, 236 A.D.2d 89, 666 N.Y.S.2d 221 (3rd Dept. 1997). The Court in McHenry held that “absent an express statutory provision, a workers’ compensation carrier has the ‘inviolable’ right to a lien against the proceeds of ‘any recovery obtained by a compensation claimant in a third-party action.” Id. at 90-91 (citing Matter of Granger v. Urda, 44 N.Y.2d 91, 96 (1978)). The Court further stated that by the express terms of Insurance Law § 5104 itself the statute applies only to injuries stemming from the negligent operation of a motor vehicle in the State of New York. Id. at 91. Insurance Law § 5104(a) is not given “extraterritorial effect” even in situations where all parties are New York residents and the accident merely occurred in another state. Id. (citing Morgan v. Bisorni, 100 A.D.2d 956, 475 N.Y.S.2d 98 (1984)).

Subsequent decisions have likewise enforced this ruling even though the peripheral facts of the case may differ. (See discussion below of Ofori v. Green, 74 A.D.3d 474, 901 N.Y.S.2d 835 (1st Dept. 2010)).

Case Facts.

In McHenry v. State Ins. Fund, 236 A.D.2d 89, 666 N.Y.S.2d 221 (3rd Dept. 1997), the Claimant was a New York resident operating within the scope of his employment on behalf of a New York employer when he was injured in a motor vehicle accident with two Connecticut residents while in the State of Connecticut. McHenry at 90. Claimant filed for Workers’ Compensation benefits, and the claim was established for injuries to Claimant’s face and left eye. Id. Claimant subsequently filed a third-party action against the Connecticut residents involved in the motor vehicle accident in the United States District Court for the Northern District of New York. Id. The case settled for $225,000.00, with Claimant receiving $149,720.00, and the carrier asserted a Workers’ Compensation Law Section 29 lien in the amount of $32,154.28. Id.

Claimant disputed the carrier’s lien. Id. The Workers’ Compensation Law Judge, after finding that Claimant was entitled to further benefits, directed the carrier to take a “Third Party Action credit” against future compensation payments, and to also take credit for prior payments. Id. Claimant appealed to the Workers’ Compensation Board, which affirmed the decision and further ruled that the carrier was entitled to a lien against Claimant’s third-party recovery. Id. Claimant appealed to the Appellate Division, Third Department, of the Supreme Court of New York.

In his appeal the Claimant contended that the Workers’ Compensation Board had erred in concluding that Insurance Law § 5104(a) was inapplicable to the carrier’s lien because the accident occurred outside New York. Id. The Court, in affirming the decision of the Workers’ Compensation Board, held that Insurance Law § 5104(a) was, in fact, inapplicable to the Claimant’s third-party action, and as such there was no statutory basis for denying the carrier recovery of the lien amount paid and an offset against post-settlement liability. Id. at 91.

In Ofori v. Green, 74 A.D.3d 474, 901 N.Y.S.2d 835 (1st Dept. 2010), the Claimant was injured in a motor vehicle accident in New Jersey. The parties were both residents of New York and the vehicles were likewise registered in New York. Id. The question before the Court was whether the “fortuitous circumstance” that the accident happened in New Jersey should negate the Petitioner having to prove a “serious injury” under Insurance Law § 5102(d). Id.

The Court, in relying on both the very text of Insurance Law § 5104(a) and the decision of the Third Department in McHenry, also held that New York’s no-fault law applies “only to ‘injuries arising out of negligence in the use or operation of a motor vehicle in this state’”. Id. at 475 (emphasis added). In the discussion, the Court set forth that New York’s no-fault law “abrogates a common law right” and, as such, must be “strictly construed.” Id. When so construed, New York Insurance Law “‘does not purport to regulate actions for personal injury arising out of the negligent use or operation of a vehicle outside this state.’” Id. (citing Morgan v. Bisorni, 100 A.D.2d 956, 475 N.Y.S.2d 98 (1984)).

The Claimant also argued that even if Insurance Law § 5102(d) was inapplicable, New Jersey’s no-fault law, which also limits noneconomic loss, should apply. The Court refused to remand the case to the motion court on this issue, stating that New Jersey’s no-fault law applies only to vehicles, “registered or principally garaged” in the State of New Jersey. Id. (citing N.J.S.A. 39:6A-3; Zabilowicz v. Kelsey, 200 N.J. 507, 509, 984 A.2d 872, 873 (2009)).

Case Law Discussion.

These decisions, among others, firmly establish the proposition that the mere happening of an accident outside the State of New York invalidates Insurance Law §§ 5102 & 5104, and the attendant $50,000.00 “carve-out,” as applied to an employer or carrier’s Section 29 lien. Even when compensation benefits are paid pursuant to New York Workers’ Compensation Law, and even when the parties involved are New York residents, the “fortuitous circumstance” that the accident happened over state lines eliminates the “carve-out” for the purposes of calculating an employer or carrier’s recoverable Section 29 lien amount.

As stated in Ofori, such a seemingly harsh rule regarding the inapplicability of Insurance Law §§ 5102 & 5104 is actually rooted in the principle that the Insurance Law abrogates a common law right, which in turn requires that the statutes be strictly construed. Additionally, in the absence of an express statutory proscription to the contrary, these cases uphold the principle that a workers’ compensation carrier has an “inviolable right” to a lien against the proceeds of any recovery obtained by a compensation claimant in a third-party action. Finally, the very text of the statutes themselves set forth explicitly that New York’s no-fault law applies only to “injuries arising out of negligence in the use or operation of a motor vehicle in this state.”

Based on the foregoing, New York’s no-fault law and the $50,000.00 “carve-out” of an employer or carrier’s Section 29 lien amount are not to be given extraterritorial effect. Essentially, the application of the $50,000.00 “carve-out” stops at New York’s state lines, regardless of the fact that benefits are paid pursuant to New York Workers’ Compensation law, and regardless of the residency of the parties or the location of the employer.

Practical Advice.

Practically, the cases set forth above add another tool to Lois Law Firm LLC’s toolbox in protecting our client’s Section 29 reimbursement interests. Counsel must always check the situs of the accident giving rise to the Workers’ Compensation claim in any case where there is potential for a subsequent Section 29 lien on any third-party recovery. In the event a plaintiff’s attorney seeks to reduce our client’s recoverable lien amount pursuant to Insurance Law §§ 5102 & 5104, McHenry and Ofori invalidate the application of these statutes if the accident took place outside the State of New York.

In calculating our clients’ recoverable lien amounts, and in the interest of obtaining them the maximum reimbursement allowed by law, it is of vital importance to establish the location of the motor vehicle accident itself. To put a finer, plain-English point on it: even if the employer is based in New York, and the Claimant is a New York resident operating on behalf of that employer, and the other car involved in the accident is both registered in New York and driven by a New York resident, and benefits are thereafter paid pursuant to New York Workers’ Compensation Law, if the accident happens on the New Jersey side of the Holland or Lincoln Tunnels, there is no $50,000.00 “carve-out” for the purposes of calculating our client’s Section 29 lien and maximum current reimbursement.

Christopher Major is an attorney in the general litigation department at Lois LLC. Christopher defends the rights of carriers and self-insureds in reimbursement claims under New York WCL § 29 and New Jersey’s Section 40 (N.J.S.A. 34:15-40) as well as any other related litigation. He can be reached at 201-880-7213 x 103.