In the Matter of Joseph A. Terranova, Jr., Appellant,v.Lehr Construction Co. et al., Respondents. Workers' Compensation Board, Respondent.BriefN.Y.November 15, 2017APL-2016-00180 Appellate Division–Third Department Case No. 521991 Court of Appeals of the State of New York JOSEPH TERRANOVA, Claimant-Appellant, – against – LEHR CONSTRUCTION CO., Employer-Respondent, – and – NEW HAMPSHIRE INSURANCE CO., Carrier-Respondent, – and – NEW YORK STATE WORKERS’ COMPENSATION BOARD, Respondent. BRIEF ON BEHALF OF AMICUS CURIAE NEW YORK STATE TRIAL LAWYERS ASSOCIATION IN SUPPORT OF CLAIMANT-APPELLANT’S APPEAL EDWARD H. GERSOWITZ, ESQ. NEW YORK STATE TRIAL LAWYERS ASSOCIATION Attorney for Amicus Curiae 132 Nassau Street, Suite 200 New York, New York 10038 Tel.: (212) 349-5890 Fax: (212) 608-2310 Dated: January 5, 2017 i TABLE OF CONTENTS Page Table of Authorities ………………………………………………… ii Question Presented ………………………………………………… 1 Procedural History ………………………………………………….. 1 Facts …………………………………………………………………. 2 Argument……………………………………………………………. 6 POINT I: THE APPELLATE DIVISION ERRED IN UPHOLDING THE WORKERS’ COMPENSATION BOARD’S INCORRECT INTERPRETATION AND APPLICATION OF WORKERS’ COMPENSATION LAW § 29(1) AND PRIOR DECISIONS ISSUED BY THIS HONORABLE COURT THAT ARE RELEVANT TO THIS CASE…………………… 6 A. The Workers’ Compensation Law Works in Tandem with the Civil Justice System So That Successful Third Party Actions Benefit Both Injured Workers and Workers’ Compensation Carriers ………………….…………………….….. 6 B. Injured Workers Must Timely File Civil Actions and Prolonging the Settlement Process Does Not Serve the Public Interest in Efficiency of the Court System……………………………….. 10 C. The Workers’ Compensation Law and This Courts’ Rulings Thereunder Do Not Require the Penalizing of Injured Workers Who Timely File and Expeditiously Settle Third Party Actions…… 12 Conclusion ……………………………………………………………... .. 14 ii TABLE OF AUTHORITIES Burns v. Varriale, 9 NY3d 207 (2007) .................................................. passim Matter of Kelly v. State Insurance Fund, 60 NY2d 791 (1983) .................. 5,7 Stenson v. NYS Dept of Transportation, 84 AD2d 22 (3d Dept. 2011) ....... 8,9 Workers’ Compensation Law § 15 (3) ............................................................9 Workers’ Compensation Law § 29 (1) ................................................. 6,11,14 Workers’ Compensation Law § 29 (4) ............................................................6 1 QUESTION PRESENTED Did the Appellate Division, Third Department err as a matter of law in concluding that the Employer and Carrier are relieved of responsibility for contributing their equitable share of Claimant-Appellant’s third-party litigation expense because his Workers’ Compensation claim resulted in a schedule loss award that was determined after the third-party settlement agreement had occurred? The NEW YORK STATE TRIAL LAWYERS ASSOCIATION respectfully submits that the answer is “Yes.” The relevant inquiry in this case should have been whether or not the amount of the Workers’ Compensation claim award was “reliably predictable” at the time that the third-party settlement agreement was entered into, or whether instead it was still “speculative.” The mere characterization of the final award as a schedule loss of use is not determinative. PROCEDURAL HISTORY In a decision filed on June 11, 2014, an administrative law judge, Workers’ Compensation Law Judge Goldstein, found that the Carrier- Respondent was not required to contribute toward the Clamant-Appellant’s 2 third party litigation case, on the ground that his Workers’ Compensation claim had ultimately resulted in an award for schedule loss of use. This decision was affirmed by a Panel of the Workers’ Compensation Board (“WCB”) on March 25, 2015. The Claimant-Appellant appealed the Board’s decision to the Appellate Division, Third Department. In an opinion filed May 19, 2016, the Appellate Division affirmed the Board’s decision. The Claimant- Appellant’s Motion for Leave to Appeal the decision of the Appellate Division was granted by this Court. FACTS On July 7, 2009, Claimant-Appellant Joseph Terranova (“the injured worker”) was employed by Employer-Respondent Lehr Construction Co. (“the Employer”) as a labor foreman. (R. 14). The record indicates that he had been employed there for 13 years. (R. 34). The Employer was insured by Carrier-Respondent New Hampshire Insurance Co. (“the Carrier”). (R. 23). Joseph Terranova injured his right knee when he tripped over a raised floor tile. He filed a claim for Workers’ Compensation benefits. (R. 15 and 24-25). His claim was accepted by the Employer and the Carrier, which 3 filed forms reflecting the injured worker’s average weekly wage, lost time and Workers’ Compensation benefits paid. (R. 27-30). Treatment had included right knee surgery and physical therapy. (R. 33). On May 9, 2011, the Carrier obtained from its consultant, Doctor Rubinfeld, an “independent medical examination” of the injured worker, who reported that he had a 10% “schedule loss of use” of his right leg. (R.32-36). Neither the Carrier nor the WCB took any action based on this report at that time. The injured worker also brought a third-party action against the contractor responsible for the defective flooring, and on March 24, 2012, his attorneys wrote to the Carrier seeking its written consent to a settlement of that action in the sum of $173,500. (R. 39). His attorneys’ letter stated that the litigation expense associated with the third-party action was 34.78% of the gross recovery, sought reduction in the Carrier’s lien by that percentage, and demanded that the Carrier “agree that any future workers’ compensation benefits be subject to the New York State Court of Appeals case of Burns v. Varriale.” (R. 39). While the Carrier refused to accept this letter and proffered a March 30, 2012 letter demanded that the claimant agree “to forego any and all claims” pursuant to Burns v. Varriale, 9 NY3d 207 (2007), which the injured 4 worker’s attorneys rejected, the Carrier issued a second consent letter on April 4, 2012, to which the claimant injured worker’s attorneys agreed. With regard to the Burns v. Varriale principle, this second letter instead stated that “it is understood by the parties herein, including the claimant, that the $14,018.75 lien reimbursement reflects a reduction of the carrier’s lien pursuant to Kelly v. State Insurance Funds [sic] and all parties reserve all their rights to Burns v. Varriale.” (R. 43). The third party action, with consent, was settled for $173,500. The net amount was $93,130.39. (R. 60). On September 19, 2102, Doctor McMahon, who examined the injured worker for treatment purposes (rather than as an insurance “independent medical examiner”), filed a C-4.3 medical report form stating that he had a 55% schedule loss of use of his right leg. (R.45). After the WCB issued a Notice of Proposed Decision on December 3, 2012, implementing a schedule loss of use award in accordance with Doctor McMahon’s opinion (R. 49), the Carrier objected, arguing that since the injured worker had settled his third-party action, the direction for an award must be subject to the Carrier’s third party credit right. (R. 52). Later it further objected on the basis that Doctor McMahon’s report was contrary to its own consultant’s report. (R. 58). 5 The administrative law judge agreed that the extent of the injured worker’s schedule loss was an unresolved issue and directed depositions of Doctor McMahon and Doctor Rubinfeld. (R. 58-59). On April 1, 2014, the WCB upheld the administrative law judge’s conclusion that the injured worker had a 10% schedule loss of use of his right leg (R.87). In further proceedings, the WCB issued a decision filed March 25, 2- 15 in which it upheld a decision by the administrative law judge that the Carrier was not obligated to pay a portion of the later award, even though the Carrier’s lien reduction did not take the injured worker’s schedule loss award into consideration and the Workers’ Compensation benefits had been awarded after the third-party settlement agreement had occurred. The administrative decision stated that, “as this case was subsequently resolved with a schedule loss of use award, the holding in Kelly v. State Insurance Fund applies, and based upon the particulars of the carrier’s consent of third party action, the Board need not consider the issue of an equitable apportion of the litigation expenses per Burns.” (R. 11). In a decision dated May 19, 2016, the Appellate Division, Third Department affirmed the WCB decision, and the injured worker has moved 6 for leave to appeal from the decision of the Appellate Division, Third Department. ARGUMENT POINT I: THE APPELLATE DIVISION ERRED IN UPHOLDING THE WORKERS’ COMPENSATION BOARD’S INCORRECT INTERPRETATION AND APPLICATION OF WORKERS’ COMPENSATION LAW § 29(1) AND PRIOR DECISIONS ISSUED BY THIS HONORABLE COURT THAT ARE RELEVANT TO THIS CASE. A. The Workers’ Compensation Law Works in Tandem with the Civil Justice System So That Successful Third Party Actions Benefit Both Injured Workers and Workers’ Compensation Carriers In cases in which a third party’s negligence was a proximate cause of a worker’s injury, the Workers’ Compensation Law contemplates that the injured worker may bring a third party action. The Carrier, however, should not be required to pay for injury costs that have been covered by the Third Party settlement, nor should the injured worker be allowed a double recovery. Thus, the law provides under Workers’ Compensation Law § 29(1) and (4) that the Workers’ Compensation Carrier may be compensated for benefits already provided to the injured worker and also claim a credit for payment of future benefits, which is accomplished through a lien against 7 the settlement amount in a successful third party action brought by the injured worker. Because the Carrier benefits from the bringing of such a third party action even though the injured worker bore the litigation costs of bringing it, the law provides that the Carrier pay its proportionate share of the costs of the litigation. In Matter of Kelly v. State Ins. Fund, 60 NY2d 131 (1983), this Court held that the carrier’s lien is offset by the percentage that the litigation costs bore to the injured worker’s total recovery, applying to the carrier’s previous benefit payments and to the present value of future benefits to be paid. Id. at 136. Thus, in this case, the $14,018.75 lien reimbursement reflected a reduction in the carrier’s lien, pursuant to Matter of Kelly. The calculation of that proportionate share depends on the total amount of credit that the Carrier will take from the settlement – and that total amount of credit, in turn, depends not only on the amount of benefits awarded but also on the amount of future benefits to be awarded. This case turns on the question of the Carrier’s responsibility with regard to litigation costs in light of future benefits. In some cases, the amount of future benefits can be predicted with reasonable accuracy. In cases of death or permanent total disability, such 8 costs are reasonably clear. If at the time of the settlement, a final determination is already in place from the Workers Compensation Board regarding the extent of a schedule loss of use, then that future cost also can be reliably predicted. The Carrier’s proportion of litigation costs thus can be calculated with fairness at the outset. If no such final disposition is in place, then that future cost cannot be reliably predicted, and where future benefits cannot be predicted reliably, a different approach is needed to address litigation cost apportionment properly and fairly. In the Burns case, involving a nonscheduled permanent partial disability, this Court ruled that where the carrier’s future benefit could not be quantified or reliably predicted and therefore was “speculative” (Id. at 215), the claimant was entitled to receive the carrier’s equitable share of litigation costs as they accrued. Id., at 217. A similar holding occurred in Stenson v. NYS Dept of Transportation, 84 AD2d 22 (3d Dept. 2011). The logic behind these decisions is clear: When future compensation benefits are not reliably predictable, they cannot be taken into consideration in lien negotiations in a third party settlement. Consequently, the Carrier must pay its equitable share of the third-party litigation expenses – from which litigation it is benefiting financially through both reimbursement of 9 previous payments and credits against future payments – as future compensation benefits accrue. The problem that occurred in the instant case arises from a failure to consider the underlying reasoning of the decisions in Burns and Stenson. In those cases, this Court noted that compensation benefits for death or permanent total disability are reasonably subject to predictability. Schedule loss of use, this Court had commented in both cases, is predictable as well. As this Court explained in Burns, “Finally, compensation awards for schedule loss of use, which pay an employee for lost earnings associated with the loss of use of a specific body part, are easily ascertainable because such awards are paid out over a specific number of weeks at a set rate (or in a lump sum) (see Workers' Compensation Law § 15[3]).” Id. at 216. Such an award most certainly is predictable and easily ascertainable, when it has been determined. But where a determined schedule loss of use does not exist at the time of the third-party settlement agreement, then it certainly cannot be deemed predictable. This is where the WCB erred, and where the Appellate Division erred in affirming the WCB’s ruling. The reference to “schedule loss of use” in this Court’s discussion of issues in Burns and Stenson is referring to a schedule loss of use that has been determined and thus has a value that is not 10 speculative, but rather can be reliably predicted. In the instant case, in contrast, the extent of the schedule loss of use had not yet been determined and in fact underwent substantial debate before a final determination was made. Either the amount of a Workers’ Compensation claim is reliably predictable at the time of a third-party action settlement, or they are a matter of speculation. If they are a matter of speculation at that time, then the Burns ruling should apply. In this case, clearly, the amount of the Workers’ Compensation claim was a matter of speculation at the time of the settlement. B. Injured Workers Must Timely File Third Party Actions and Prolonging the Settlement Process Would Not Serve the Public Interest in Efficiency of the Court System Because he was bound by a statute of limitations, the injured worker was required to commence his third party liability action within three years of the date of the injury. As the record shows, his injury occurred on July 7, 2009. He properly filed his action and subsequently entered into a settlement with the third party liable entity, the manufacturer of the floor tile. 11 The injured worker followed proper procedure in entering into this settlement. He sought and obtained consent to the settlement from his employer, Lehr Construction Company, and the company’s Workers’ Compensation insurance carrier, New Hampshire Insurance Company. Under the Consent Letter, the injured worker offered to pay the insurance carrier $14,018.75 to satisfy the lien on the settlement to which the carrier would be entitled under Workers’ Compensation Law § 29(1). This amount reflected a reduction of the carrier’s lien based on the carrier’s proportionate share of litigation expenses. (R. 43). That reduction, however, was based solely on the carrier’s payments at the time of the third-party settlement; it did not consider any future award for schedule loss of use. As part of this Consent Letter, the carrier in turn consented to the injured worker’s reservation of his right to claim additional contribution toward his third-party litigation expense if the carrier were to benefit further from this third-party settlement by taking credit against a claim for future compensation benefits as they came due, pursuant to the Court of Appeals’s decision in Burns v. Varialle. Under the Appellate Division’s erroneous decision, the only way that this injured worker could have avoided the undue burden of paying for the portion of litigation costs, as associated with future benefits, for an outcome 12 that clearly also benefited the Carrier financially would have been to delay, and delay, and delay, settlement of the third party action while awaiting the outcome of the Workers Compensation Board’s proceedings. This disincentive for prompt settlement runs counter to the public’s interest in court system efficiency. Cases will remain on the docket significantly longer than necessary, and litigation costs will be higher, simply because of this unfair and unjustifiable situation. Yet such delay is completely unnecessary given that this Court has already provided a fair and reasonable approach to deal with equitable apportionment of attorney fees when future costs are not reliably predictable, as set out quite clearly in this Court’s rulings in Burns and Stetson. C. The Workers’ Compensation Law and This Courts’ Rulings Thereunder Do Not Require the Penalizing of Injured Workers Who Timely File and Expeditiously Settle Third Party Actions If the Appellate Division, Third Department decision in this case is allowed to stand, it will penalize not only this injured worker but any other injured worker who properly and timely files a third party action and seeks to settle it expeditiously, while a Workers Compensation Claim is pending. 13 That is not the intent of the Workers’ Compensation Law. The Workers’ Compensation Law contains no provision to discourage such actions, but rather makes them more feasible for an injured worker to bring by providing for proportionate payment of litigation costs by the Carrier that benefits from the settlement. It was never the intent, under New York’s Workers’ Compensation system, for an injured worker to be penalized for not having factual information that was outside his or her control or ability to obtain because it had not yet been determined by the Workers’ Compensation Board. This injured worker did not do wrong by timely filing the third party action or by engaging in settlement of the claim. On the contrary, the Workers’ Compensation Law not only contemplates such actions but specifically provides for integration of this remedy with the Workers’ Compensation system so that both the worker and the Workers’ Compensation insurance carrier benefit from a successful action. This Court’s ruling in Burns and Stetson, moreover, provide ample clarity regarding how the payment of litigation costs by the Carrier should be managed where, as here, future benefits are not yet reliably predictable. CONCLUSION The Appellate Division erroneously upheld the WCB' s incorrect interpretation of WCL § 29( 1) and incorrect application of the rulings of this Court thereunder, as described above. We therefore respectfully submit that the decision of the Appellate Division was in error and should be reversed. Dated: Ne\v York, New York January 5, 2017 14 President of New York State Trial Lawyers Association 132 Nassau St, Suite 200 New York, NY I 0007 (212) 349-5890 NEW YORK STATE COURT OF APPEALS CERTIFICATE OF COMPLIANCE I hereby certify pursuant to 22 NYCRR PART 500.l(j) that the foregoing brief vvas prepared on a computer using Microsoft Word. Type. A proportionally spaced typeface was used, as follovvs: Natne oftypeface: Titnes New Roman Point size: 14 Line spacing: Double Word Count. The total number of words in this brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations~ proof of service, certificate of cotnpliance, corporate disclosure statement, questions presented, statement of related cases, or any authorized addendum containing statutes, rules, regulations, etc., is 2,703 words. l)ated: New York, Nevv York January 5, 2017 President of New York State 'frial Lawyers Association 132 Nassau St Suite 200 N evv York, NY 1 0007 (212) 349-5 890