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Appellate Division Clarifies Calculation of End Date of Carrier’s “Holiday” Credit in Third-Party Action Cases

On 6/1/17, the Appellate Division, Third Department, decided Lala v. Site Works Contracting Corp. At issue was how the end date for a carrier’s third-party action holiday should be calculated for cases involving Burns payments for the carrier’s equitably apportioned share of the third-party action litigation expenses.

The claimant in Lala settled his third-party action for $100,000.00 on 3/11/11.  He received a net recovery of $64,541.51.  The Board awarded him $500.00 per week for indemnity.  Of that amount, 35.46% ($177.30 per week) constituted the carrier’s Burns payment, with the remaining $322.70 directly credited to the third-party action holiday.

The Board held that the credit expired on 8/20/13. In calculating this date, the WCLJ used the $322.70 portion of the carrier’ credit and also the $177.30 Burns payment, meaning the full $500.00 per week was deducted from the $64,541.51 credit. On appeal to the Appellate Division, the carrier argued that only its $322.70 per week share should be deducted from the credit and that the $177.30 per week Burns payment should not be deducted from the credit. If this method were used, its credit would not expire until 1/6/15. The claimant and the Board argued that the full $500.00 per week should be deducted from the credit when calculating the exhaustion date.

Citing Kelly v. State Insurance Fund, Burns v. Varriale, and Stenson v. New York State Department of Transportation, the Appellate Division held that in the absence of a specific provision to the contrary in the carrier’s settlement consent letter, the appropriate manner for calculating the credit exhaustion is to include both the amount of Burns payment and the carrier’s share of the awards in the weekly deductions from the net third-party action recovery when indemnity awards are payable to the claimant. In other words, the appropriate deduction from the carrier’s credit was $500.00 per week, not $322.70 per week. The Court explained that under the Court of Appeals precedent governing equitable apportionment of third-party action litigation expenses, the carrier’s share of litigation expenses is based on the total benefit derived from the third-party action recovery. Because Burns payments are a pay-as-you-go method of repaying the claimant’s third-party action litigation expenses, allowing the carrier to deduct only its weekly share of the net recovery from the amount of the third-party action credit would create a double recovery to the carrier because the Burns payments are supposed to reimburse the claimant for the costs incurred in obtaining the third-party action recovery.

The Appellate Division’s use of the phrase “in the absence of a specific provision to the contrary” should serve as a reminder to all parties of the importance of careful drafting of consent letters to third-party settlements due to the scrutiny given to them by the Board and the Courts.

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