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

1) it will now be conclusively presumed that, except with respect to payments made by a benefit provider for which there is a statutory right of reimbursement, the money paid in settlement of any personal injury or wrongful death action did not include compensation for the losses or expenses that were or will be paid by benefit providers;

2) a plaintiff in a personal injury or wrongful death action who settles with one or more of the defendants in the action could henceforth not be charged with thereby violating the provisions of any contract between the plaintiff and a benefit provider;

3) except for those payments made by a benefit provider for which there is a statutory right of reimbursement, no defendant that enters into a settlement with the personal injury or wrongful death plaintiff shall be thereafter subject to any benefit provider's claim for subrogation or reimbursement; and,

4) those defendants who are "public employers" would now have the same rights as all other defendants to reduce their liability by virtue of collateral source payments that the plaintiff is reasonably certain to receive.

In addition to those principal changes, the bill would codify the case law permitting the plaintiff to prove his or her full damages at the trial, this because the presence or absence of substantial medical or other expenses may constitute telling circumstantial proof as to the nature or severity of the injury for which compensation is sought.

The bill would also effect changes in CPLR Rule 4111 (concerning the form of the jury verdict sheet), CPLR § 4213 (concerning the form of the judge's decision in non-jury cases) and CPLR § 4545. Most notably, because all tort defendants would now stand equal in terms of the right to deduct collateral source payments, the special provisions that formerly governed medical malpractice defendants and public employer defendants would be repealed.

One standard that would not change is that, as before, no defendant would be permitted to reduce its damages by virtue of a prospective collateral source payment unless that defendant established that the plaintiff was "reasonably certain" to receive such payment. This has always been intended to pose a high bar so as to assure that the most seriously injured and deserving plaintiffs are not compelled to become public charges by virtue of speculative or overly optimistic assumptions regarding the availability of collateral resources. This long-existing safeguard is even more important in this era in which few would regard most prospective payments, especially payments that would allegedly be made decades in the future, as "reasonably certain" to be received.

Justification

CPLR § 4545 generally 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).

As a separate matter, there is currently no statute that addresses or limits the extent to which a benefit provider that paid for some of the plaintiffs medical or other expenses can claim contractual reimbursement or subrogation with respect to funds that it paid pursuant to an insurance contract or other agreement. Nor, in the situation in which a personal injury or wrongful death action is commenced to obtain compensation for the same injuries that gave to the medical or other expenses paid by the benefit provider, is there any statute that specifies whether or under what circumstances such a benefit provider can intervene as a party in the personal injury or wrongful death actions.

Both of those statutory gaps have now become more critical in light of the Court of Appeals' recent decision in Fasso v. Doerr, N.Y.3d, 2009NYSLIPOP01320 (Feb. 24, 2009). Although CPLR § 4545 provides, in part, tort defendants with the right to reduce their liability to plaintiff with respect to those damages for which plaintiff has already been compensated by virtue of insurance or other payments, Fasso makes any such savings illusory. Under Fasso, the health insurer, HMO, or other benefit provider that paid for the loss in issue is entitled to sue the tort defendant for the very damages that the plaintiff would be statutorily barred from recovering. Fasso also suggests that benefit providers may now be permitted to intervene en masse for that purpose, a state of affairs that would delay disposition of such actions and also make such actions much more expensive to litigate.

CPLR § 4545 originally was enacted in response to the medical malpractice crisis of the 1980's, and represented legislative abrogation of the longstanding "collateral source" rule at common law. It was hoped that by precluding plaintiffs from recovering for those damages that were compensated by other sources tort recoveries could be reduced and malpractice premiums lowered. The legislature also sought to prevent so-called "double recoveries" in which a plaintiff whose expense or loss was covered by insurance or some other payor nonetheless recovered compensation for the same "loss" from the defendant. Later, because those 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.

For the most part, the statute has worked fairly well in the small minority of cases that actually go all the way to verdict and judgment. However, the absence of any statute defining or limiting subrogation and reimbursement rights has created problems in the context of settlements, problems that have been exacerbated by two Court of Appeals decisions.

I One significant problem arises from the Court of Appeals decision in Teichman v. Community Hosp. Of Western Suffolk, 87 N.Y.2d 514 (1996). As a practical matter, because no defendant will ever knowingly pay more in settlement than it would have to pay if the case went to trial and the plaintiff won, no settlement will ever include compensation for expenses that were paid by the plaintiffs insurance and which the plaintiff could therefore not recover at trial. Yet, the Court of Appeals ruled in Teichman that an insurer that had paid some of the plaintiffs or decedent's pre-trial medical or other expenses could in some instances intervene in the personal injury or wrongful death action for the purpose of seeking "reimbursement" from the plaintiffs settlemen funds.

The ruling in Teichman is problematic in three respects. First, in preventing "double recoveries," the legislature certainly did not mean to ensure that plaintiffs with meritorious claims were undercompensated and did not intend that a the plaintiff who had the good fortune or foresight to have insurance coverage should do worse than a plaintiff who had no resources at all. But that is precisely the result that Teichman engenders. When the plaintiffs insurer is allowed to force the plaintiff to pay "reimbursement" from a fund that did not include any compensation for the expense in issue, the plaintiff is effectively being compelled to "reimburse" the insurer from settlement funds that were provided to compensate for a different loss or expense, such as non-economic loss, i.e. pain and suffering. This means that the plaintiff has become undercompensated for that other expense, as well as being undercompensated overall.

Ironically, by allowing an insurer to obtain "reimbursement" from settlement proceeds that as a practical matter would never include compensation for the payments made by that insurer, the plaintiff who settles his or her case and was "fortunate" enough to have insurance coverage effectively becomes a self-insurer who ultimately winds up with lesser compensation than if he or she had no insurance at all. More accurately, such can occur if the plaintiff in fact settles, which leads to the second problem.

Because this reimbursement problem in which the plaintiff effectively becomes a self-insurer is limited to those cases in which the plaintiff settles, the plaintiff is encouraged not to settle. Simply stated, THE TEICHMAN RULE CONCERNING: SETTLEMENTS MAKES IT MORE DIFFICULT TO SETTLE CASES .ct.

Finally, the very idea that any insurer that has paid a bill should be permitted to intervene in the personal injury or wrongful death action is itself a procedural nightmare to be avoided. Even in the simplest case involving a single plaintiff and a single defendant, there may have been several different insurers or other benefit providers that each paid part of the plaintiffs medical or other expenses. The notion that each and every such insurer can or should join the lawsuit is one that will make litigation exponentially more expensive and more time-consuming than ever before.

The problems engendered by the ruling in Teichman would be solved by a new statute, section 5-335 of the general obligations law, that would define and limit the rights of benefit providers, in particular by recognizing the reality that TORT SETTLEMENTS DO NOT IN FACT INCLUDE COMPENSATION FOR PREVIOUS1V COVERED LOSSES AND EXPENSES .ct. In recognizing that to be so, the bill would assure that plaintiffs who had insurance coverage are not penalized by being made into self-insurers and thus denied a fair settlement. In precluding such factually unfounded claims for reimbursement, the bill would secondarily preclude insurer interventions for reimbursement.

II The Court of Appeals' recent decision in Fasso creates a different problem, one that relates to subrogation rights. When the legislature allowed defendants to avoid liability for those expenses and losses for which the plaintiff had already been compensated, the intent was not merely that defendants would not have to pay the plaintiffs for those losses or expenses, but rather that the defendants would not have to pay anyone for such already-covered losses or expenses.

Although there is no statute that expressly says that the plaintiffs insurer would be barred from recovering for a loss or expense that the plaintiff was barred from recovering at trial, the assumption was that the insurance company stood "in the shoes" of its insured and could have no greater rights than its insured.

That assumption had become problematic in recent years, with some courts indicating that such was the case and others indicating the opposite. Now, with the Court of Appeals' February 2009 decision in Fasso, the matter is no longer unclear.

Fasso holds that the insurer does NOT stand in the shoes of its insured and that such assumption "misapprehends the nature of the equitable subrogation doctrine." Fasso also holds that the plaintiffs insurer can pursue its claim for subrogation even if, as actually was the case in Fasso, the plaintiffs settlement provided only partial compensation for the plaintiffs damages.

Although the Fasso Court acknowledged the principle that the plaintiff should be "made whole" before the plaintiffs insurer can recover for its out-of-pocket expense, the Court construed that principle to apply only where the defendant lacked sufficient resources to pay the plaintiffs entire damages and not when questionable liability or other circumstances (perhaps a significant comparative negligence defense, or perhaps dire financial needs) induced the plaintiff to settle for partial compensation of his or her damages.

By virtue of the recent ruling in Fasso, doctors, hospitals, or other defendants who settle with the plaintiff remain liable for that which it was not liable to pay plaintiff - expenses or losses paid by benefit providers - rendering the savings illusory. For example, in the hypothetical case in which the plaintiff incurred $200,000 in medical expenses that were fully covered by the plaintiffs insurance, the defendant would "save" $200,000 in the settlement, but only to then pay the $200,000 to the plaintiffs insurer. Thus, the Court's holding in Fasso effectively nullifies the near-total abrogation of the collateral source rule as enacted in the 1980's, as embodied in CPLR 4545, with respect to past covered losses and expenses.

The ruling in Fasso also means that THE PLAINTIFFS INSURER CAN INSIST UPON THE DEFENDANT FULLY PAYING FOR THE EXPENSE IN ISSUE EVEN WHEN THE PLAINTIFF IS ONLY PARTIALLY COMPENSATED BY THE SETTLEMENT FOR HIS OR HER LOSSES .ct. Thus, an insurer that was paid to assume the risk of loss can insist on payment for 100% of its outlay even where the plaintiff-insured was compensated for only 50% or even 20% of his or her loss.

Under this bill, a benefit provider would have no right of reimbursement or subrogation against a settling defendant for those benefits paid to or on behalf of plaintiff, unless set forth by statute. In thus limiting the plaintiffs' insurers' rights to sue the tort defendants, the bill would make the savings to such defendants a real one.

III

The bill would also bring an end to the exception discussed in the Court of Appeals' decision in Iazzetti v. City of New York, 94 N.Y.2d 183 (1999).

Due to the statutory history that is well described in the Iazzetti decision, CPLR § 4545 currently allows all defendants other than "public employers" to deduct further collateral source payments that the plaintiff is reasonably certain to receive. By contrast, defendants who are "public employers" can deduct only past payments, not future payments.

The bill would provide "public employer" defendants the same rights as other defendants.

IV

Although the bill would thus effect some substantial changes, THE OVERRIDING INTENT IS TO CLOSE CERTAIN STATUTORY GAPS THAT WERE HIGHLIGHTED BY THE COURT OF APPEALS IN TEICHMAN AND FASSO .ct.

The understandable desire to prevent "double recoveries" would no longer complicate and deter the settlement of personal injury and wrongful death actions, and would no longer result in undercompensation of plaintiffs who had their own insurance coverage.

Actions would not become geometrically more complex with the intervention of waves of insurers.

Any "savings" that the settling tort defendant might realize from the circumstance that plaintiff had insurance would be a real savings, and not one that is passed on to the plaintiffs' insurers.

All defendants would henceforth stand equal for purposes of collateral source set-offs.

V

This bill is similar, in substance, to one that had been previously proposed by the Office of Court Administration's Advisory Committee for Civil Practice. There are three principal differences.

First, although the Advisory Committee's bill contained the same main features, this bill is limited in scope to the settlement of lawsuits inasmuch as this has been the context in which the current problems arise.

Second, the provisions limiting insureds' rights of subrogation and reimbursement (which was also a component of the Advisory Committee's proposal) were moved from the Civil Practice Law and Rules to the General Obligations Law. This was done because most other statutory limits upon contractual rights generally appear in the General Obligations Law, whereas Article 45 of the CPLR deals with evidence and verdicts, not settlements.

Finally, the effective date was altered so that the new sections of the General Obligations Law would apply to as many post-enactment settlements as possible.

While legislative action was certainly warranted post-Teichman, as was illustrated by the recommendations of the Advisory Committee, the Court's recent holding in Fasso makes legislative action all the more imperative. The Court in Fasso recognized this, and indeed urged legislative re-examination of this area of law.

Legislative history

2008: A.8364-B/S.5128-A - Passed Assembly/S. Codes Committee 2007: A.8364-A/S.5128 - Rules Report 271/S. Calendar

Fiscal implications

It is anticipated that there will be a positive impact on State and Local governments.

Effective date

Immediately and shall apply to all actions and proceedings commenced on or after such date, provided, however, that sections four through eight shall also apply to any action or proceeding which was commenced prior to such effective date where, as of such date, either (a) a trial of the issues has not yet commenced, or (b) the parties have not yet entered into a stipulation of settlement