The Rogak Report: 29 July 2005
- INTERCOMPANY LOSS TRANSFER ARB DOES NOT APPLY TO NO-FAULT BENEFITS
PAID WHILE WORKERS COMP CLAIM WAS BEING CHALLENGED
National Union Fire Insurance Co. v. Farmers New Century Ins. Co., 8
Misc.3d 1004(A), 2005 WL 1429883 (Supreme Court, New York County
2005) (YATES, j)
On October 26, 2001, Wayne Wells, an employee of the URS
Corporation, was involved in an automobile accident on his way home
from work. As a result of the accident, Wells sustained serious
injuries and filed a workers' compensation claim and a no-fault claim
for payment of medical bills and lost wages. He also filed a claim
for disability benefits with First UNUM Life Insurance Company and a
personal injury action.
Farmers New Century Insurance Company was the no-fault carrier for
Mr. Wells. URS was insured by National Union Fire Insurance Company
for Workers' Compensation. AIG handles workers' compensation claims
that URS employees bring under the National policy. AIG denied Mr.
Wells workers' compensation benefits on the ground that he was not
injured during the course of his employment. As a result of
National's denial of coverage and pursuant to its insurance policy
with the insured, Farmers alleged it paid first-party benefits to Mr.
Wells. First UNUM, URS and claimant's major medical insurer also paid
monies to Mr. Wells. Since other insurers paid benefits to the
claimant, AIG allegedly alerted the Workers' Compensation Board of
this fact and requested that the Board determine the amounts due as
reimbursement from AIG.
On June 10, 2002, the Workers' Compensation Board issued a decision
finding that claimant's injuries were work-related, entitling him to
an award. On that date, AIG withdrew its objections to claimant's
claim. By application dated January 7, 2004, Farmers commenced
arbitration proceedings against National Union at Arbitration Forums,
Inc. Farmers claimed it paid no-fault benefits to Mr. Wells from the
date of the accident until June 10, 2002 in the amount of $
55,460.45, and now was seeking reimbursement from National Union
After receiving notice of the intent to arbitrate, National Union
commenced this proceeding for a stay of arbitration, arguing it could
not be obligated to participate in the arbitration. First, National
Union argued that the Workers' Compensation Board is vested with
primary jurisdiction as to the applicability of workers' compensation
or no-fault insurance coverage in work-related motor vehicle
accidents. National then contended that the matter was already
pending before the Workers' Compensation Board, that Farmers was
included and involved in that action and that the only proper forum
for determining the amounts, if any, which AIG was responsible to
repay to respondent was the Board. In the alternative, National
argued that if the court allowed the arbitration to proceed, then the
court should add the claimant as an additional respondent in the
arbitration proceeding, so that the arbitrator would be able to make
an award, if any, against the proper party, the claimant himself.
Farmers opposed the petition, arguing that there was no basis for a
stay. To avoid inconsistent decisions on the matter, a temporary stay
of the arbitration was granted by this Court pending a decision by
the Board on the issue of lien priority among the disability carrier,
employer, and the no-fault carrier.
On July 29, 2004, a Workers' Compensation Board hearing was held.
Frost. National alleged that Farmers failed to submit a brief to the
Board explaining the reasons Farmers believed it was entitled to
reimbursement. Following the hearing at which Farmers was allowed to
participate, a decision was issued on November 19, 2004, finding that
no-fault benefits were not reimbursable, as a matter of law, under
the Workers' Compensation statute. The Board determined that the
disability carrier was liable for paying benefits pending the outcome
of the compensation litigation. Because the disability carrier was
legally obligated to pay benefits during the period in question and
the employer was not obligated to continue wage payments to claimant
during the same period, the Board held that the disability carrier's
lien had priority over the employer's lien. Therefore, the disability
carrier was to be reimbursed in full for the period of time in which
benefits were paid.
After the disability carrier's lien was satisfied, the employer could
be reimbursed for "the difference between the proper compensation
rate payable to claimant during that period and the amount reimbursed
to the disability carrier."
The WCB judge also held that the compensation carrier was not
entitled to a lien under Workers' Compensation Law section 29 on the
amount of monies claimant received under his employer's
underinsurance coverage. He reasoned that the lien and offset
provisions of section 29 could only be applied against recoveries
from third-party tortfeasors who were responsible for Wells'
injuries. Furthermore, he found "irrelevant that the underinsured
policy claimant received these proceeds from the employer because the
employer was not the person whose negligence or wrong caused the
claimant's injuries." The case was to continue on the issue of proper
awards consistent with the decision.
Farmers argued that the dispute is subject to mandatory arbitration
pursuant to Workers Compensation Law 29(1-a) and the loss transfer
provisions of Insurance Law section 5105. National argued that if
Farmers made any erroneous payments to claimant, AIG's remedy is to
seek reimbursement of these monies directly from claimant or his
medical providers. As well, National contended that if Farmers is
entitled to reimbursement of any sum of money, it is not entitled to
the amount claimed.
The Court held that "By definition, uninsured motorist coverage
compensates for 'noneconomic' loss and economic loss in excess of
basic economic loss, and shall not duplicate any element of basic
economic loss. Workers' compensation benefits by definition are
limited to reimbursement for basic economic loss."
Insurance Law section 5105 is the loss transfer statute. It provides
that "(a) Any insurer liable for the payment of first party benefits
to or on behalf of a covered person and any compensation provider
paying benefits in lieu of first party benefits which another insurer
would otherwise be obligated to pay pursuant to subsection (a) of
section five thousand one hundred three of this article or section
five thousand two hundred twenty one of this chapter has the right to
recover the amount paid from the insurer of any other covered person
to the extent that such other covered person to the extent that such
other covered person would have been liable, but for the provisions
of this article, to pay damages in an action at law. In any case, the
right to recover exists only if at least one of the motor vehicles
involved is a motor vehicle weighing more than six thousand five
hundred pounds unloaded or is a motor vehicle used principally for
the transportation of persons or property for hire.... (b) The sole
remedy of any insurer or compensation provider to recover on a claim
arising pursuant to subsection (a) hereof, shall be the submission of
the controversy to mandatory arbitration pursuant to procedures
promulgated or approved by the superintendent. Such procedures shall
also be utilized to resolve all disputes arising between insurers
concerning their responsibility for the payment of first party
"Insurance Law section 5105," held the Court, "is inapplicable in
this matter. The mandatory arbitration provisions are concerned with
a party's status as an insurer or compensation provider. While the
statutory scheme requires mandatory arbitration to resolve all
disputes arising between insurers concerning their responsibility for
the payment of first-party benefits or between compensation
providers, the courts have held that a workers' compensation carrier
is not bound to arbitrate a claim by a no-fault insurer for money it
was obligated to pay during the time that the workers' compensation
carrier was contesting the claim."
"Although a good case could be made for including a no-fault
insurer's action to recover from a workers' compensation carrier
within the mandatory arbitration provision... the statute did not
encompass this kind of controversy. The failure of the Legislature to
include a particular situation was an excellent indication that its
exclusion was intended."
"That being the case, Farmers does not possess an arbitrable claim
against AIG and the demand that arbitration be ordered is denied.
As well, an insurer can present a claim to recover basic economic
loss from the insurer of another covered person, if (a) one of the
motor vehicles involved in the accident weighs more than 6,500 lbs.
unloaded; or (b) is a motor vehicle used for the transportation of
persons or property for hire. Under those circumstances, arbitration
is mandatory. There was no evidence presented that the vehicles
involved in the accident met this condition precedent to arbitration.
The Court, by this decision, does not mean to imply that respondent
is not entitled to reimbursement. The decision is limited merely to a
finding that the parties have not agreed to arbitration and Insurance
Law section 5105 does not impose arbitration upon them."
The Arbitration was permanently stayed.