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Court Gives Carrier Full Credit on SLU After 3rd Party Settlement Without Contribution to Litigation Costs

We all know that for a carrier to obtain a lien recovery and future offset rights against a third-party settlement, the carrier has to pay its fair share of litigation costs as outlined in Kelly, Burns, and other decisions. Nevertheless, in Terranova v. Lehr Construction Co., 139 A.D.3d 1309 (3d Dep’t 2016), the Appellate Division allowed a carrier to take full credit on a 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.

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 stated “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 totalled $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.

Kelly, however, requires 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. The parties in Terranova never provided for this further reduction of the carrier’s lien. Although there was a 10% SLU opinion available, they didn’t reduce that potential award to present value and further reduce the lien. Instead, their consent letter stated that the lien was reduced to account for satisfaction of the carrier’s Kelly obligation even though the reduction only accounted for lien recovery. In focusing narrowly on the consent letter, it doesn’t appear as if the Appellate Division examined the details of the carrier’s lien reduction or whether it actually contributed to the cost of litigation in using its credit.

While the rationale of this decision may be questioned as contrary to statute and precedent, the Board has applied Terranova to mean that only Kelly is applicable in schedule loss of use cases, and carriers are not obligated to pay Burns payments when applying a credit/offset to a subsequent schedule loss of use award. See, e.g., Administration for Children, 2016 WL 4055125 (WCB # 00620960, 07/22/2016). The Board appears to be saying that any time there is a SLU case, there are no Burns payments, even if the SLU is awarded after the settlement. This results in the carrier paying proportionally less for its share of the cost of litigation in SLU cases than in cases of permanent partial disability, permanent total disability, or death.

The claimant in Terranova has asked for leave to appeal to the Court of Appeals. If the Court of Appeals agrees to hear the case it could overturn the Appellate Division’s decision. Similarly, the claimant in the Administration for Children case could seek appeal to the Appellate Division. It is also possible that future cases will clarify Terranova to limit it to the terms of the consent letter. In the meantime, however, we will apply Terranova to your SLU cases and protect your interests to ensure your maximum recovery in third-party settlements.

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