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Supreme Court, Westchester County, New York.

Wendoliz ESTEVEZ, Plaintiff, v. PUBLIC DEFENDER TRUST and Ronald N. Duguid, Defendants.


Decided: October 25, 2018

Mallilo & Grossman, 163-09 Northern Boulevard, Flushing, NY 11358, 718-461-6633, by Lorenzo Tasso, Esq., For Plaintiff Jones Jones LLC, 5 Hanover Square, Suite 1001, New York, NY 10004, 212-776-1808, by Jacqueline R. Mancino, Esq., For Liberty Mutual Insurance Company

Plaintiff Wendoliz Estevez brought this personal injury action alleging that on October 3, 2014 he was injured while he was operating a hand truck on West 75th Street approximately 100 feet west of Broadway in New York County, when a vehicle operated by defendant Ronald Duguid and owned by defendant Public Defender Trust backed up into the hand truck, which in turn struck plaintiff. Liberty Mutual both insures the defendants and serves as the workers' compensation carrier handling plaintiff's claims as an injured employee. As the defendants' insurer, it has offered the policy limits of $250,000 to settle the personal injury case. However, as the workers' compensation carrier, it states that it has provided benefits totaling $898,881.47, which includes $154,347.54 in indemnity payments, $454,533.93 in medical payments and a $290,000.00 award paid to plaintiff to close out his workers' compensation case. Based on these expenditures, it asserts a statutory lien for those sums. It has offered to waive $10,000 of its lien, so that plaintiff would “recover something” from the settlement of this action.

Plaintiff contends that Liberty Mutual is acting in bad faith by refusing to reasonably compromise its lien. He relies on the so-called “made whole” rule, a limitation on the doctrine of equitable subrogation, which prevents insurers, in certain circumstances, from recouping funds they expended from their insureds.

In opposing the motion, Liberty Mutual relies on Workers' Compensation Law § 29(1), which authorizes a workers' compensation carrier to assert a lien against an insured claimant's recovery from any party responsible for the underlying loss. The carrier argues that equitable liens must be distinguished from statutory liens, and that the “made whole” rule applies only to equitable liens and has no applicability to statutory liens.


Initially, plaintiff submits no legal authorities that support issuance of the type of directive he seeks against his workers' compensation carrier, requiring the carrier to compromise its statutory lien; nor does he provide any information regarding how the appropriate compromise would be determined, assuming that it were legally permissible. He does not cite to any cases in which such a declaration or order has been issued.

Moreover, his discussion of the law regarding whether permissive intervention “will unduly delay the determination of the action or prejudice the substantial rights of any party” (CPLR 1013), sheds no light on this dispute. The carrier is not seeking intervention; indeed, it is plaintiff that has, in effect, forced the carrier's intervention with this motion.

Plaintiff's primary argument is based on the so-called “made whole” rule, which was created to preclude insurers from exercising a right they would otherwise have had by virtue of the doctrine of equitable subrogation. Under equitable subrogation, when an insurer pays for losses sustained by its insured that were occasioned by a wrongdoer, the insurer is entitled to seek recovery — sometimes, from its own insured — of the monies it expended (see Fasso v. Doerr, 12 N.Y.3d 80, 86, 875 N.Y.S.2d 846, 903 N.E.2d 1167 [2009], citing Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc., 3 N.Y.3d 200, 206, 785 N.Y.S.2d 399, 818 N.E.2d 1140 [2004], Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d 577, 581, 626 N.Y.S.2d 994, 650 N.E.2d 841 [1995], Federal Ins. Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 372, 553 N.Y.S.2d 291, 552 N.E.2d 870 [1990], and Connecticut Fire Ins. Co. v. Erie Ry. Co., 73 N.Y. 399, 402 [1878] ). The equitable subrogation doctrine “seeks, first, to prevent the insured from recovering twice for one harm, as it might if it could recover from both the insurer and from a third person who caused the harm, and, second, to require the party who has caused the damage to reimburse the insurer for the payment the insurer has made” (Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d at 581, 626 N.Y.S.2d 994, 650 N.E.2d 841). “[I]f an injured party receives monies from the tortfeasor attributable to expenses that were paid by its insurer, the insurer may recoup its disbursements from its insured[, while] when the wrongdoer does not pay damages for an insured's medical expenses, generally the insurer, as subrogee, has been allowed to seek recovery directly from the tortfeasor” (Fasso v. Doerr, 12 N.Y.3d at 87, 875 N.Y.S.2d 846, 903 N.E.2d 1167, citing Teichman v. Community Hosp. of W. Suffolk, 87 N.Y.2d 514, 521-523, 640 N.Y.S.2d 472, 663 N.E.2d 628 [1996] ).

The “made whole” rule constitutes an “important limitation” on those equitable subrogation rights of insurers to recover from their insureds:

“If the sources of recovery ultimately available are inadequate to fully compensate the insured for its losses, then the insurer—who has been paid by the insured to assume the risk of loss—has no right to share in the proceeds of the insured's recovery from the tortfeasor. In other words, the insurer may seek subrogation against only those funds and assets that remain after the insured has been compensated”

(Fasso v. Doerr, 12 N.Y.3d at 87, 875 N.Y.S.2d 846, 903 N.E.2d 1167 [internal quotation marks and citation omitted] ). Indeed, “an insurer has no right of subrogation against its insured when the insured's actual loss exceeds the amount it has recovered from both the insurer and the wrongdoer” (Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d at 581, 626 N.Y.S.2d 994, 650 N.E.2d 841 [emphasis added] ). “If the recovery the injured party receives, whether determined by settlement or verdict, is greater than the wrongdoer's assets and available insurance coverage, there is nothing left for the insurer to execute its subrogation rights against and the made whole rule prevents the insurer from sharing in the insured's judgment or recovery” (Fasso v. Doerr, 12 N.Y.3d at 87, 875 N.Y.S.2d 846, 903 N.E.2d 1167).

It is noted that the relief sought in plaintiff's motion — a directive that Liberty Mutual must “reasonably compromise” its lien — does not logically follow from an application of the “made whole” rule. The rule, where it applies, precludes any recovery by an insurer from its insured where the insured is not fully compensated for his or her losses; it has nothing to do with reducing or compromising liens. However, Liberty Mutual does not address this incongruity. Rather, its argument is limited to the contention that the “made whole” rule is entirely inapplicable here, since its lien is statutory in nature, whereas the “made whole” rule applies only to extinguish an insurer's right of equitable subrogation.

The carrier argues that “it is well established” that the made whole doctrine “only applies to liens that arise under the doctrine of equitable subrogation, not liens that arise out of statute, such as a Workers' Compensation lien.” However, it does not cite any case that clearly so states. Rather, if this Court is to reach that conclusion, it must do so by consideration of the characteristics of statutory liens and the case law discussing them.

There can be no dispute that where a workers' compensation carrier makes payments to an injured covered employee, a lien is created by statute. Workers' Compensation Law § 29(1) specifically authorizes the carrier's “lien on the proceeds of any recovery from such [tortfeasor], whether by judgment, settlement or otherwise, after the deduction of the reasonable and necessary expenditures, including attorney's fees, incurred in effecting such recovery, to the extent of the total amount of compensation awarded under or provided ․” (id.). It is noteworthy that, while the statute specifically creates a procedure allowing a court to “apportion[ ] the reasonable and necessary expenditures, including attorneys' fees, incurred in effecting such recovery,” it does not make provision for the court to apportion the carrier's lien between that which is reasonable and that which is unreasonable. Rather, the statute appears to contemplate that the carrier's entitlement to its lien is on all sums paid, as against the entire amount of the recovery.

The lien held by a workers' compensation carrier has been characterized by the Court of Appeals as “inviolab[le] ․ against any recovery by a compensation claimant” (Matter of Granger v. Urda, 44 N.Y.2d 91, 96, 404 N.Y.S.2d 319, 375 N.E.2d 380 [1978] ). The irreducible nature of the workers' compensation lien is further illustrated by Daniels v. Monroe County Child Support Collection Unit, 11 A.D.3d 944, 945, 783 N.Y.S.2d 443 [4th Dept. 2004]. There, the Court discussed the priority of the various claims being made against the proceeds of a settlement obtained by the petitioner in connection with a work-related injury. First, the petitioner's attorneys were entitled to assert their lien under Judiciary Law § 475; then, the workers' compensation carrier was entitled to collect on its lien under Workers' Compensation Law § 29(1); only then would the Monroe County Child Support Collection Unit (CSEU) be entitled to collect based on its claim for unpaid child support (see Daniels v. Monroe County Child Support Collection Unit, 11 A.D.3d at 945, 783 N.Y.S.2d 443). There is no indication in the Daniels decision that the workers' compensation carrier should be required to reduce its lien to accommodate the competing claims of the Child Support Collection Unit, let alone the needs of the petitioner.

Another category of statutory liens that entitles an agency to recoup what it paid, when the injured party obtains a judgment or settlement, is found in Social Services Law § 104-b, which authorizes the Department of Social Services (“DSS”) to “place a lien for public assistance on personal injury claims and suits against third parties to the extent of the expenditures made on the recipient's behalf. That statutory scheme provides that DSS “shall be subrogated, to the extent of [its] expenditures for medical care furnished, to any rights such person may have to medical support or third party reimbursement” (Social Services Law § 367-a [2] [b] [emphasis added] ). The public welfare official's lien attaches to any verdict, judgment or award in any suit respecting such injuries, “as well as [to] the proceeds of any settlement thereof” (Social Services Law § 104-b [3]; see Cricchio v. Pennisi, 90 N.Y.2d at 305-306, 660 N.Y.S.2d 679, 683 N.E.2d 301 [1997] ). Nothing can be discerned in that statutory scheme that would justify imposing on the public welfare agency a requirement that it compromise or reduce its lien before it attached to any such verdict, judgment, award or settlement.

In proposing that the “made whole” rule must be applied to statutory liens such as the one at issue here, plaintiff also relies on USF & G v. Maggiore, 299 A.D.2d 341, 749 N.Y.S.2d 555 [2d Dept. 2002], asserting that the Second Department in that case extended the “made whole” doctrine to contractual subrogation. Given that foundation, plaintiff reasons that the doctrine should, as a matter of policy be applied to insurance carriers generally. However, its characterization of the holding in Maggiore is inaccurate. The Court there did not extend the “made whole” doctrine to insurers' contractual rights; rather, it “determine[d] th[e] issue by reference to equitable subrogation principles” because, while “the insurance companies claim[ed] that they [were] asserting contractual, rather than equitable, subrogation rights,” those companies had failed to submit the contracts or contract provisions necessary for the court to address their contractual rights (id. at 343-344, 749 N.Y.S.2d 555). Thus, its holding does not represent a broader extension of the “made whole” rule, but merely a standard application of the equitable doctrine.

No previous case has been found by this Court directly holding that the rules and limitations applicable to equitable subrogation rights are inapplicable to the statutory lien to which a workers' compensation carrier is entitled under Workers' Compensation Law § 29(1). This Court now so holds, concluding that the workers' compensation carrier here, Liberty Mutual Insurance Company, is entitled to assert the entirety of its lien without interference or enforced compromise by order of this Court. The “made whole” rule, which precludes an insurance carrier that is asserting a right of equitable subrogation from recouping any recovery from an insured if that recovery is inadequate to fully compensate the insured for his losses, cannot be applied to the statutory lien of the workers' compensation carrier.

Based upon the foregoing discussion, it is hereby

ORDERED that plaintiff's motion for an order declaring that Liberty Mutual Insurance Company is exercising bad faith by refusing to reasonably compromise its lien, or in the alternative for an order directing the insurer to reasonably compromise its lien in order to facilitate a fair and equitable settlement of the matter, is denied; and it is further

ORDERED that the parties are directed to appear, as previously scheduled, on November 16, 2018 at 9:30 a.m., in the Trial Ready Part of the Courthouse, 111 Dr. Martin Luther King, Jr., Boulevard, White Plains, New York 10601, for trial.

This constitutes the Decision and Order of the Court.

Terry Jane Ruderman, J.

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