Senate Bill S6004

                                 BILL NUMBER:  S6004

 TITLE OF BILL :
An act to amend the civil practice law and rules, in relation to
treating public and private defendants equally when considering the
impact of collateral source payments in tort claims for personal
injury, property damage or wrongful death; to amend the general
obligations law, in relation to protecting parties to the settlement
of a tort claim from certain unwarranted lien, reimbursement and
subrogation claims; and to repeal certain provisions of the civil
practice law and rules relating to collateral source payments


 PURPOSE :
This legislation seeks to resolve certain significant problems that
have arisen in the context of the settlement of personal injury and
wrongful death actions. In addition, there is an exception in the
treatment of collateral sources in tort actions in that, unlike
private employers and all other defendants, public employers, when
sued by their employees, are not entitled to have awards for lost
future earnings offset by collateral sources of compensation, such as
an accident disability pension, that the plaintiff will receive to
replace those same lost earnings.

 SUMMARY OF PROVISIONS :
This measure would amend CPLR § 4545 and enact a new section 5-335 of
              

the General Obligations Law so as to effect the following changes:

1) it will now be conclusively presumed that, except with respect to
payments made by a benefit provider for which there is a statutory
right of reimbursement, the money paid in settlement of any personal
injury or wrongful death action did not include compensation for the
losses or expenses that were or will be paid by benefit providers;

2) a plaintiff in a personal injury or wrongful death action who
settles with one or more of the defendants in the action could
henceforth not be charged with thereby violating the provisions of any
contract between the plaintiff and a benefit provider;

3) except for those payments made by a benefit provider for which
there is a statutory right of reimbursement, no defendant that enters
into a settlement with the personal injury or wrongful death plaintiff
shall be thereafter subject to any benefit provider's claim for
subrogation or reimbursement; and,

4) those defendants who are "public employers" would now have the same
rights as all other defendants to reduce their liability by virtue of
collateral source payments that the plaintiff is reasonably certain to
receive.

In addition to those principal changes, the bill would codify the case
law permitting the plaintiff to prove his or her full damages at the
trial, this because the presence or absence of substantial medical or
other expenses may constitute telling circumstantial proof as to the
nature or severity of the injury for which compensation is sought.

The bill would also effect changes in CPLR Rule 4111 (concerning the
form of the jury verdict sheet), CPLR § 4213 (concerning the form of
the judge's decision in non-jury cases) and CPLR § 4545. Most notably,
because all tort defendants would now stand equal in terms of the
right to deduct collateral source payments, the special provisions
that formerly governed medical malpractice defendants and public
employer defendants would be repealed.

One standard that would not change is that, as before, no defendant
would be permitted to reduce its damages by virtue of a prospective
collateral source payment unless that defendant established that the
plaintiff was "reasonably certain" to receive such payment.  This has
always been intended to pose a high bar so as to assure that the most
seriously injured and deserving plaintiffs are not compelled to become
public charges by virtue of speculative or overly optimistic
assumptions regarding the availability of collateral resources. This
long-existing safeguard is even more important in this era in which
few would regard most prospective payments, especially payments that
would allegedly be made decades in the future, as "reasonably certain"
to be received.

 JUSTIFICATION :
CPLR § 4545 generally provides that a plaintiff who has a personal
injury, wrongful death or property damage action cannot recover
damages for any expense or loss that was or will be covered by a
collateral source, such as his or her health insurance. The statute,
which for historical reasons has three different subdivisions (one for
medical malpractice actions, one for actions against public employers,
and one for all other actions), exempts those collateral sources that
constitute liens against the plaintiffs recovery (e.g. workers'
compensation payments).

As a separate matter, there is currently no statute that addresses or
limits the extent to which a benefit provider that paid for some of
the plaintiffs medical or other expenses can claim contractual
reimbursement or subrogation with respect to funds that it paid
pursuant to an insurance contract or other agreement. Nor, in the
situation in which a personal injury or wrongful death action is
commenced to obtain compensation for the same injuries that gave to
the medical or other expenses paid by the benefit provider, is there
any statute that specifies whether or under what circumstances such a
benefit provider can intervene as a party in the personal injury or
wrongful death actions.

Both of those statutory gaps have now become more critical in light of
the Court of Appeals' recent decision in Fasso v. Doerr, _ N.Y.3d _,
 2009NYSIIOOP01320  (Feb. 24, 2009).  Although CPLR § 4545 provides,
in part, tort defendants with the right to reduce their liability to
plaintiff with respect to those damages for which plaintiff has
already been compensated by virtue of insurance or other payments,
Fasso makes any such savings illusory.  Under Fasso, the health
insurer, HMO, or other benefit provider that paid for the loss in
issue is entitled to sue the tort defendant for the very damages that
the plaintiff would be statutorily barred from recovering.  Fasso also
suggests that benefit providers may now be permitted to intervene en
masse for that purpose, a state of affairs that would delay
disposition of such actions and also make such actions much more
expensive to litigate.

CPLR § 4545 originally was enacted in response to the medical
malpractice crisis of the 1980's, and represented legislative
abrogation of the longstanding "collateral source" rule at common law.
It was hoped that by precluding plaintiffs from recovering for those
damages that were compensated by other sources tort recoveries could
be reduced and malpractice premiums lowered. The legislature also
sought to prevent so-called "double recoveries" in which a plaintiff
whose expense or loss was covered by insurance or some other payor
nonetheless recovered compensation for the same "loss" from the
defendant. Later, because those goals were considered salutary in
other types of cases, the legislature made the statute applicable to
all previously unaddressed property damage, personal injury, and
wrongful death actions.

For the most part, the statute has worked fairly well in the small
minority of cases that actually go all the way to verdict and
judgment. However, the absence of any statute defining or limiting
subrogation and reimbursement rights has created problems in the
context of settlements, problems that have been exacerbated by two
Court of Appeals decisions.

I

One significant problem arises from the Court of Appeals decision in
Teichman v. Community Hosp. Of Western Suffolk, 87 N.Y.2d 514 (1996).
As a practical matter, because no defendant will ever knowingly pay
more in settlement than it would have to pay if the case went to trial
and the plaintiff won, no settlement will ever include compensation
for expenses that were paid by the plaintiff s insurance and which the
plaintiff could therefore not recover at trial. Yet, the Court of
Appeals ruled in Teichman that an insurer that had paid some of the
plaintiffs or decedent's pre-trial medical or other expenses could in
some instances intervene in the personal injury or wrongful death
action for the purpose of seeking "reimbursement" from the plaintiffs
settlement funds.

The ruling in Teichman is problematic in three respects. First, in
preventing "double recoveries," the legislature certainly did not mean
to ensure that plaintiffs with meritorious claims were
undercompensated and did not intend that a the plaintiff who had the
good fortune or foresight to have insurance coverage should do worse
than a plaintiff who had no resources at all. But that is precisely
the result that Teichman engenders. When the plaintiffs insurer is
allowed to force the plaintiff to pay "reimbursement" from a fund that
did not include any compensation for the expense in issue, the
plaintiff is effectively being compelled to "reimburse" the insurer
from settlement funds that were provided to compensate for a different
loss or expense, such as non-economic loss, i.e. pain and suffering.
This means that the plaintiff has become undercompensated for that
other expense, as well as being undercompensated overall.

Ironically, by allowing an insurer to obtain "reimbursement" from
settlement proceeds that as a practical matter would never include
compensation for the payments made by that insurer, the plaintiff who
settles his or her case and was "fortunate" enough to have insurance
coverage effectively becomes a self-insurer who ultimately winds up
with lesser compensation than if he or she had no insurance at all.
More accurately, such can occur if the plaintiff in fact settles,
which leads to the second problem.

Because this reimbursement problem in which the plaintiff effectively
becomes a self-insurer is limited to those cases in which the
plaintiff settles, the plaintiff is encouraged not to settle.  Simply
stated,  THE TEICHMAN RULE CONCERNING SETTLEMENTS MAKES IT MORE
DIFFICULT TO SETTLE CASES .ct.

Finally, the very idea that any insurer that has paid a bill should be
permitted to intervene in the personal injury or wrongful death action
is itself a procedural nightmare to be avoided. Even in the simplest
case involving a single plaintiff and a single defendant, there may
have been several different insurers or other benefit providers that
each paid part of the plaintiff s medical or other expenses. The
notion that each and every such insurer can or should join the lawsuit
is one that will make litigation exponentially more expensive and more
time-consuming than ever before.

The problems engendered by the ruling in Teichman would be solved by a
new statute, section 5-335 of the general obligations law, that would
define and limit the rights of benefit providers, in particular by
recognizing the reality that  TORT SETTLEMENTS DO NOT IN FACT INCLUDE
COMPENSATION FOR PREVIOUSLY COVERED LOSSES AND EXPENSES .ct.  In
recognizing that to be so, the bill would assure that plaintiffs who
had insurance coverage are not penalized by being made into
self-insurers and thus denied a fair settlement. In precluding such
factually unfounded claims for reimbursement, the bill would
secondarily preclude insurer interventions for reimbursement.

II

The Court of Appeals' recent decision in Fasso creates a different
problem, one that relates to subrogation rights. When the legislature
allowed defendants to avoid liability for those expenses and losses
for which the plaintiff had already been compensated, the intent was
not merely that defendants would not have to pay the plaintiffs for
those losses or expenses, but rather that the defendants would not
have to pay anyone for such already-covered losses or expenses.

Although there is no statute that expressly says that the plaintiffs
insurer would be barred from recovering for a loss or expense that the
plaintiff was barred from recovering at trial, the assumption was that
the insurance company stood "in the shoes" of its insured and could
have no greater rights than its insured.

That assumption had become problematic in recent years, with some
courts indicating that such was the case and others indicating the
opposite. Now, with the Court of Appeals' February 2009 decision in
Fasso, the matter is no longer unclear.

Fasso holds that the insurer does  NOT  stand in the shoes of its
insured and that such assumption "misapprehends the nature of the
equitable subrogation doctrine." Fasso also holds that the plaintiffs
insurer can pursue its claim for subrogation even if, as actually was
the case in Fasso, the plaintiffs settlement provided only partial
compensation for the plaintiffs damages.

Although the Fasso Court acknowledged the principle that the plaintiff
should be "made whole" before the plaintiffs insurer can recover for
its out-of-pocket expense, the Court construed that principle to apply
only where the defendant lacked sufficient resources to pay the
plaintiff s entire damages and not when questionable liability or
other circumstances (perhaps a significant comparative negligence
defense, or perhaps dire financial needs) induced the plaintiff to
settle for partial compensation of his or her damages.

By virtue of the recent ruling in Fasso, doctors, hospitals, or other
defendants who settle with the plaintiff remain liable for that which
it was not liable to pay plaintiff - expenses or losses paid by
benefit providers - rendering the savings illusory. For example, in
the hypothetical case in which the plaintiff incurred $200,000 in
medical expenses that were fully covered by the plaintiffs insurance,
the defendant would "save" $200,000 in the settlement, but only to
then pay the $200,000 to the plaintiffs insurer. Thus, the Court's
holding in Fasso effectively nullifies the near-total abrogation of
the collateral source rule as enacted in the 1980's, as embodied in
CPLR 4545, with respect to past covered losses and expenses.

The ruling in Fasso also means that  THE PLAINTIFFS INSURER CAN INSIST
UPON THE DEFENDANT FULLY PAYING FOR THE EXPENSE IN ISSUE EVEN WHEN THE
PLAINTIFF IS ONLY PARTIALLY COMPENSATED BY THE SETTLEMENT FOR HIS OR
HER LOSSES .ct. Thus, an insurer that was paid to assume the risk of
loss can insist on payment for 100% of its outlay even where the
plaintiff-insured was compensated for only 50% or even 20% of his or
her loss.

Under this bill, a benefit provider would have no right of
reimbursement or subrogation against a settling defendant for those
benefits paid to or on behalf of plaintiff, unless set forth by
statute. In thus limiting the plaintiffs' insurers' rights to sue the
tort defendants, the bill would make the savings to such defendants a
real one. The limitation on subrogation provided for in section eight
of this bill is applicable to an action for personal injuries,
medical, dental, or podiatric malpractice, or wrongful death and is
inapplicable to the subrogation of property damage claims.

III

The bill would also bring an end to the exception discussed in the
Court of Appeals' decision in Iazzetti v. City of New York, 94 N.Y.2d
183 (1999).

Due to the statutory history that is well described in the Iazzetti
decision, CPLR § 4545 currently allows all defendants other than
"public employers" to deduct further collateral source payments that
the plaintiff is reasonably certain to receive. By contrast,
defendants who are "public employers" can deduct only past payments,
not future payments.

The bill would provide "public employer" defendants the same rights as
other defendants.

IV

Although the bill would thus effect some substantial changes,  THE
OVERRIDING INTENT IS TO CLOSE CERTAIN STATUTORY GAPS THAT WERE
HIGHLIGHTED BY THE COURT OF APPEALS IN TEICHMAN AND FASSO .ct.

The understandable desire to prevent "double recoveries" would no
longer complicate and deter the settlement of personal injury and
wrongful death actions, and would no longer result in under
compensation of plaintiffs who had their own insurance coverage.

Actions would not become geometrically more complex with the
intervention of waves of insurers.

Any "savings" that the settling tort defendant might realize from the
circumstance that plaintiff had insurance would be a real savings, and
not one that is passed on to the plaintiffs' insurers.

All defendants would henceforth stand equal for purposes of collateral
source set-offs.

V

This bill is similar, in substance, to one that had been previously
proposed by the Office of Court Administration's Advisory Committee
for Civil Practice. There are three principal differences.

First, although the Advisory Committee's bill contained the same main
features, this bill is limited in scope to the settlement of lawsuits
inasmuch as this has been the context in which the current problems
arise.

Second, the provisions limiting insureds' rights of subrogation and
reimbursement (which was also a component of the Advisory Committee's
proposal) were moved from the Civil Practice Law and Rules to the
General Obligations Law. This was done because most other statutory
limits upon contractual rights generally appear in the General
Obligations Law, whereas Article 45 of the CPLR deals with evidence
and verdicts, not settlements.

Finally, the effective date was altered so that the new sections of
the General Obligations Law would apply to as many post-enactment
settlements as possible.


While legislative action was certainly warranted post-Teichman, as was
illustrated by the recommendations of the Advisory Committee, the
Court's recent holding in Fasso makes legislative action all the more
imperative. The Court in Fasso recognized this, and indeed urged
legislative re-examination of this area of law.

 LEGISLATIVE HISTORY :
2008: A.8364-B/S.5128-A - Passed Assembly/S. Codes Committee
2007:A.8364-A/S.5128 - Rules Report
271/S. Calendar

 FISCAL IMPLICATIONS :
It is anticipated that there will be a positive impact on State and
Local governments.

 EFFECTIVE DATE :
Immediately and shall apply to all actions and proceedings commenced
on or after such date, provided, however, that sections four through
eight shall also apply to any action or proceeding which was commenced
prior to such effective date where, as of such date, either (a) a
trial of the issues has not yet commenced, or (b) the parties have not
yet entered into a stipulation of settlement.