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Terranova Court of Appeals Decision Reminds Board to Not Miss the (Equitable Apportionment) Forest for the (Kelly Decision) Tree

In a decision released on 12/19/17, the Court of Appeals (New York State’s highest court) ruled that the Board erred in allowing a carrier to take full credit for a schedule loss of use awarded after the settlement of a claimant’s third-party action without any further contribution to litigation costs for use of that credit.

WCL Section 29 provides that for a carrier to obtain a lien recovery and future offset rights against a third-party settlement, the carrier must pay its fair share of litigation costs as outlined in KellyBurns, and other decisions. Nevertheless, in Terranova v. Lehr Construction Co., 139 A.D.3d 1309 (3d Dep’t 2016), the Appellate Division affirmed a Board decision allowing a carrier to take full credit on an SLU awarded after the settlement of the claimant’s third-party action but without any further contribution to litigation costs for use of that credit. The claimant appealed this decision to the Court of Appeals, which reversed the Appellate Division in the 12/19/17 decision.

In Terranova, the carrier paid $21,495.99 in past benefits at the time of settlement. The claimant also had a 10% SLU opinion from his doctor, but it hadn’t been awarded. The consent letter provided that the carrier would reduce its lien from $21,495.99 to $14,018.75. This reduction represented the carrier’s proportional contribution to the cost of litigation associated with obtaining the third-party settlement under Kelly v. State Insurance Fund. There was no further reduction of the lien to account for the carrier’s future credit rights. Rather, the consent to settle letter said that “any future workers’ compensation benefits [would] be subject to” Burns v. Varriale payments. After the settlement, the Board awarded the claimant a 10% SLU, which totaled $17,280.00. The Board also found that the third-party settlement exceeded the SLU award and that despite the language in the consent letter, the carrier could take full credit of the SLU award against the third-party settlement without any further contribution for litigation costs.

On appeal, the Appellate Division affirmed and focused its attention on the consent letter. Even though the consent letter noted that the carrier was subject to Burns payments on future awards, the Appellate Division ruled that the carrier did not need to make a Burns payment for the SLU award. Instead, the Appellate Division relied on the language in the consent letter that specified that the carrier’s initial reduction in the lien was in satisfaction of its Kelly obligation.

Last summer, we questioned the rationale of the Appellate Division’s decision as contrary to statute and precedent because the Kelly decision required not only a reduction in the carrier’s lien at the time of settlement to account for litigation costs, but also a further reduction to account for the present value of the carrier’s future obligation that was extinguished because of the third-party settlement. That further reduction was missing from the analysis of Terranova by both the Board and Appellate Division.

The Court of Appeals has corrected this, noting that the overriding principle in third-party action cases is the “certainty” of the award at the time a third-party matter is resolved. In Terranova, the Court found that because the present value of the loss of use was not finalized at the time of the claimant’s third-party recovery, the carrier was obligated to pay its fair share of litigation expenses at the time the present value was determined. The Board’s original decision allowed the carrier to take credit for the SLU without paying its fair share for use of that credit.

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