New York’s Bar on Personal Injury Settlement Liens Upheld

Plaintiffs in New York products liability cases which settle – a category encompassing most such cases – need not reimburse their private health insurer for health care costs, under a 2009 New York statute, General Obligations Law sec. 5-335. The statute created a presumption that a personal injury settlement does not include any compensation for the cost of health care services paid by the injured person’s health benefit provider. 

For years prior to the enactment, private health insurers asserted liens or “rights of recovery” against personal injury settlements. The assertion of a lien by a private health insurer created unease on the part of settling defendants due to uncertainty whether the liens might be enforceable. It also created an impediment to settlement for plaintiffs, who might reject an otherwise reasonable offer because of the possibility that a substantial share of the proceeds could go to their health insurer. The overall effect was to drive up the cost of settling. New York’s adoption of the statute in 2009 extinguished the health insurers’ ability to assert liens against settlements, even in cases where plaintiffs alleged the costs of medical care (reimbursed by their insurer) as part of their damages. In so doing, the statute encouraged settlement of cases. 

While it was recognized that the New York statute applied to persons who had health care coverage under non-ERISA plans, it was unclear whether plans regulated by ERISA were still entitled to assert liens regardless of the General Obligations Law, based on an argument that the federal law “preempted” state law on the topic, rendering the New York statute inapplicable.

The issue was clarified in Wurtz v. Rawlings Co., decided by the U.S. Court of Appeals for the Second Circuit on July 31, 2014. That was a class action against Oxford Health Plans (NY) and the Rawlings Co., LLC seeking to enjoin them from asserting liens against ERISA plan members who brought personal injury claims. The defendants raised the federal preemption argument as a defense. Reversing the trial court, the Second Circuit Court held that while ERISA does generally preempt state law that relates to any employee benefit plan, the New York statute was saved from preemption, since it is a law that “regulates insurance,” an exception to the preemption rule.

The decision in Wurtz  provides an added measure of certainty to product manufacturers, distributors and retailers who choose to embark on settlement discussions with plaintiffs and should help move many cases – especially those where a plaintiff has had substantial medical expenses – towards amicable resolution.

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