State of New York
Supreme Court : County of Wayne

- against -

Index No. 42612

ANDREW V. SIRACUSE, J.

This personal injury case ended in a jury verdict in April of 1999, and disputes among the attorneys over collateral source and other issues have prevented a final judgment ever since. The jury awarded the plaintiffs $161,000; it was understood by the attorneys that there was an issue regarding collateral source payments, and prior to the verdict the attorneys agreed that the final award to Mrs. Divelbliss would be no lower than $85,000 and no higher than $300,000.

In a letter decision dated November 1, 1999, the court reduced the award by $50,000, representing basic economic loss that is not recoverable under the Insurance Law. The court directed that the sums already paid to third parties under the collateral source provisions of CPLR 4545 were to be determined, by a hearing if necessary, and that after such reductions the award would be adjusted if necessary to comply with the high-low stipulation.

A proposed settlement short of a collateral source hearing was set out by Mr. Durkin, who at this stage represents Allstate, the defendant's insurance carrier. It appears from this letter and from a subsequent fax and conversation with Mr. Villani, plaintiff's counsel, that Messrs. Durkin and Villani have agreed upon the sums payable to third parties on account of the injury: namely, $16,687.11, representing additional personal injury protection (APIP) benefits paid by National Grange, the plaintiffs' first-party carrier; $4500 for future damages, which would be subject to a claim by National Grange should the plaintiff make a claim for further ameliorative surgery to National Grange; and $14,000 for past damages paid to plaintiff from social security and/or disability.

It appears, however, that under the supposed agreement the sums of $4500 and $14,000 are to be reduced by one-third, corresponding to Mr. Villani's fee on these amounts. The plaintiff will be responsible for reimbursing any payments that she has received. The status of the $16,687.11 APIP benefits is in dispute.

The court made a brief letter decision on May 19, but in view of Mr. Villani's representations it withdraws that decision and addresses the question differently, with a view to a final settlement of all outstanding issues in this case. Once again, as in its November letter decision, the court feels compelled to state that counsel have confused the concepts of basic economic loss and collateral source. The $16,687.11 APIP benefits are not collateral source payments. That sum represents first party benefits for which National Grange has a lien, as provided in Insurance Law § 5104(b):

In any action by or on behalf of a covered person, against a noncovered person, where damages for personal injuries arising out of the use or operation of a motor vehicle or a motorcycle may be recovered, an insurer which paid or is liable for first party benefits on account of such injuries has a lien against any recovery to the extent of benefits paid or payable by it to the covered person

. The $4500 is also recoverable as part of the award, and National Grange indeed has a lien to the extent that a claim will be made against it in the future. Mr. Villani states that he cannot settle for $3000 of the $4500 future damages if his client is to face the possibility of reimbursing the full sum on a subsequent claim made to National Grange. The court cannot see why this presents a problem; the contract between Mr. Villani and the client clearly envisions that she is to pay him one third of the jury verdict. This verdict, representing at least in theory reasonable compensation for her injuries, must necessarily be inadequate to deal with those expenses once it is reduced by a third. This is certainly unfortunate, but the misfortune lies within the attorney's decision to work for a contingent fee and not to any defect in the law.

The $14,000, on the other hand, represents payments made to the plaintiff from other sources, and is indeed subject to the collateral source provisions of CPLR 4545 (c):

In any action brought to recover damages for personal injury, injury to property or wrongful death, where the plaintiff seeks to recover for the cost of medical care, dental care, custodial care or rehabilitation services, loss of earnings or other economic loss, evidence shall be admissible for consideration by the court to establish that any such past or future cost or expense was or will, with reasonable certainty, be replaced or indemnified, in whole or in part, from any collateral source such as insurance (except for life insurance), social security (except those benefits provided under title XVIII of the social security act), workers' compensation or employee benefit programs (except such collateral sources entitled by law to liens against any recovery of the plaintiff).

The statutory scheme is inelegantly expressed, perhaps, but makes logical sense. First party benefits are recovered by the carrier, and the damages award serves to pass the responsibility for those benefits from the plaintiff's carrier to the defendant's, on whom the burden properly falls. Payments from social security, disability, and similar sources are not recouped by the payor, but the damages award is reduced by those sums to avoid a double recovery.

At this point the issues can be resolved. The language of the stipulation is important: Mr. Durkin agreed that it applied to "pain and suffering and/or any collateral sources which we are not entitled to offset." (Transcript, p. 3, ll. 7-10). The intention of the agreement would appear to be that Mrs. Divelbliss was to receive no less than $85,000, to be divided between herself and Mr. Villani, and that Allstate would be liable to pay out no more than $300,000; thus, if the jury had awarded more than $300,000, Allstate's liability would not exceed that sum even if National Grange were to have a lien that reduced the effective award to less than that amount. Fundamental fairness requires that the stipulation be interpreted so that in the reverse case Allstate must increase the award accordingly; otherwise the plaintiff would be the loser in either contingency.

In the present case, the award payable to Mrs. Divelbliss is less than $85,000, after deduction of the lien: the only offset is for the sums paid by social security and/or disability, or $14,000. (The $4500 future damage award is subject to the statutory lien only if it is payable at present, which is not the case.) The $161,000 award, then, is first reduced by $50,000 basic economic loss, leaving $111,000. The $14,000 collateral source payment is then deducted, leaving $97,000. From this, National Grange has a lien of $16,687.11; Allstate will pay this directly to National Grange and a check for $85.000.00 (rather than $80,312.89) is to be made out to Mr. Villani, from which he is to deduct such a fee as he and his client have agreed upon.²

Mr. Durkin may prepare a final judgment accordingly.

DATED: Rochester, New York

May 24, 2000

Andrew V. Siracuse, J.S.C.

Note 1.See Insurance Law § 5104 (a): "there shall be no right of recovery for non-economic loss, except in the case of a serious injury, or for basic economic loss."

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Note 2.Mr. Villani claims that he is waiving his fee on the $4500 and $14,000, but in fact his client would receive exactly what she would have if Allstate had paid the full amount of damages subject to claims by others and he had taken his fee on these sums. She is no better off because of this purported waiver, and Allstate is the beneficiary. Mr. Villani, of course, is without a portion of his fee, but he apparently is willing to settle only if he can recover monies as against National Grange.

This is not something that National Grange would be likely to agree to, as it paid out the monies in good faith, was not a party to the litigation or the later negotiations, has a statutory lien on the whole amount, and gains nothing by the supposed settlement. Nor does the court know of any law that would allow an attorney's lien on these sums that would affect National Grange's rights. In short, the supposed settlement prejudices National Grange most of all. Mr. Villani's generosity in foregoing his fee on the two other sums is subsidized by a claim on National Grange.

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