Provides for impact and equalizations of collateral source payments upon tort claims for personal injury, property damage or wrongful death; repealer

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.