St. Paul Fire and Marine Ins. Co. v. Surdam

Page 264

595 A.2d 264

156 Vt. 585

ST. PAUL FIRE AND MARINE INSURANCE COMPANY v. Marie SURDAM.

No. 89-554.

Supreme Court of Vermont.

May 31, 1991.

John P. Riley of McKee, Giuliani & Cleveland, Montpelier, for plaintiff-appellee.

Thomas Dailey, Bennington, and Jill Nagy of Lee & LeForestier, P.C., Troy, N.Y., for defendant-appellant.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

MORSE, Justice.

Defendant, a Vermont resident, was injured in a work-related automobile accident in New York state. St. Paul, a workers' compensation insurance carrier for defendant's employer, paid defendant $40,000 in benefits. It now seeks to recover that amount from an $85,000 settlement reached in a lawsuit brought by defendant in New York against the driver of the other vehicle involved in the accident. The trial court entered judgment in the carrier's favor. The issue raised on appeal concerns the interpretation of Vermont's workers' compensation law, 21 V.S.A. § 624(e), permitting the carrier to recover the amount of benefits it paid from monies received by the worker in a personal injury action against a third party. We hold that the trial court misinterpreted the law and, accordingly, reverse.

The parties agree that Vermont's statute on reimbursing workers' compensation carriers governs. Specifically, 21 V.S.A. § 624(e) states:

In an action to enforce the liability of a third party, the plaintiff may recover any amount which the employee or his personal representative would be entitled to recover in a civil action. Any recovery against the third party for damages resulting from personal injuries or death only, after deducting expenses of recovery, shall first reimburse the employer or its workers' compensation insurance carrier for any amounts paid or payable under this chapter to date of recovery, and the balance shall forthwith be paid to the employee or his dependents or personal representative and shall be treated as an advance payment by the employer on account of any future payment of compensation benefits. (Emphasis added.)

If Vermont law had governed the merits of the New York personal injury action, defendant could have recovered damages for both economic losses, such as medical and other out-of-pocket expenses and lost income proximately caused by the accident, and noneconomic losses, such as pain and suffering and other related nonmonetary injury. In contrast, New York provides that workers' compensation and no-fault automobile insurance cover all economic loss and limits recovery against third parties to noneconomic losses. The parties have agreed that New York law governs what damages are recoverable in defendant's action against the other driver.

The New York Court of Appeals recently explained how the New York system is intended to work:

A seriously injured automobile accident victim is allowed to plead for basic economic loss recovery as well as for noneconomic loss in a direct action, but the final judgment must be reduced by the court by the amount of basic economic loss, for which recovery in the direct action forum is forbidden (Insurance Law § 5104[a], [c] ). The final judgment then reflects the victim's noneconomic damages only, such as pain and suffering or customarily unquantifiable detriments. The intended result is that the injured person is made "whole" by receipt of workers' compensation and no-fault automobile insurance benefits representing economic losses, combined with the direct action noneconomic damages.

Dietrick v. Kemper Insurance Co., 76 N.Y.2d 248, 252-53, 556 N.E.2d 1108, 1110-11, 557 N.Y.S.2d 301, 303-04 (1990). Thus, in this case, defendant's third-party settlement can be understood only as compensation for noneconomic losses.

New York not only limits what injured employees can recover from third parties, it also limits what workers' compensation carriers can recover. Indeed, if New York law were applied to the facts of this case, the carrier could recover nothing from defendant or anyone else.

New York workers' compensation law grants to a workers' compensation carrier a lien, in the amount of compensation it has paid, on the proceeds of an employee's action against a third party. N.Y.Work.Comp.Law § 29(1) (McKinney Supp.1991). A workers' compensation carrier, however, cannot recover proceeds received "whether by judgment, settlement or otherwise ... which were in lieu of first party benefits." N.Y.Work.Comp.Law § 29(1-a) (McKinney Supp.1991). "First party benefits" are payments made by an insurance carrier to an accident victim for "basic economic loss" due to personal injuries up to $50,000. N.Y.Ins.Law § 5102(b), (a) (McKinney 1985); see Dietrick, 76 N.Y.2d at 251, 556 N.E.2d at 1109, 557 N.Y.S.2d at 302. When an accident victim receives workers' compensation, the no-fault carrier can deduct that sum from the proceeds it is required to pay. Id. at 251, 556 N.E.2d at 1109-10, 557 N.Y.S.2d at 302-03. Thus, in New York, the workers' compensation carrier provides primary coverage for the first $50,000 of basic economic loss. For example, the carrier here paid only $40,000 in compensation, and if New York law had governed, would not be entitled to a lien for that amount.

Where workers' compensation payments are limited to first party benefits and a lien on proceeds recovered from third parties is therefore unavailable, the carrier may seek a "loss transfer" from a negligent third-party's insurer by a statutorily mandated arbitration process, N.Y.Ins.Law § 5105 (McKinney 1985). See Vinson v. Berkowitz, 83 A.D.2d 531, 532, 441 [156 Vt. 589] N.Y.S.2d 460, 462 (1981) (1978 amendments to workers' compensation and no-fault insurance statutes took away compensation carrier's lien and replaced it with intercompany loss transfer provisions). It has not been shown that plaintiff could have used this process because it applies only if at least one of the motor vehicles involved in the accident weighs more than 6500 pounds or is "used principally for the transportation or persons or property for hire," N.Y.Ins.Law § 5105(a). If plaintiff were eligible for arbitration, however, that would be its sole method of recoupment under New York law. N.Y.Work.Comp.Law § 29(1-a).

In Vermont, a successful worker-plaintiff may recover both economic and noneconomic damages from a third party, and...