OGC Op. No. 10-12-04
The Office of General Counsel issued the following opinion on December 3, 2010, representing the position of the New York State Insurance Department.
RE: No-Fault Lost Wages
May a no-fault insurer offset disability benefits an insured receives from his union benefit fund against lost wages due under no-fault personal injury protection (“PIP”) coverage, where the insured has a lien agreement with the union fund that is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), which requires that the disability benefit be re-paid to the union fund?
No. While N.Y. Ins. Law § 5102(b)(2) (McKinney 2000) generally permits an insurer to offset amounts recovered or recoverable by an insured, including disability benefits, the insured here has a lien agreement with the union benefit fund that provided the disability benefit, which is governed by ERISA, and the agreement requires re-payment of the disability benefit to the fund. As such, the amounts being offset are not recovered or recoverable by the insured and thus may not be offset.
It is reported that an XYZ Insurance Company (“XYZ”) insured was in an automobile accident and filed for no-fault benefits including loss of earnings. The insured also filed for disability insurance benefits with his union benefit fund and was paid $2,450. A lien has been asserted by the union benefit fund on all benefits recovered by the insured from any party, including the insurer, based upon a subrogation agreement signed by the insured. When paying the insured’s claim, XYZ took a weekly deductible of $170 for New York State disability benefits from the lost wages due the insured after the insured’s employer indicated that the insured was entitled to disability benefits. No offset was taken for benefits paid above $170. XYZ asserts that, pursuant to Article 9 of the N.Y. Workers Compensation Law (“WCL”) and Insurance Law §§ 5104 and 5105, a disability insurer has no right of recovery for the benefits paid out that were used to calculate the offset. The insured’s attorney states that the disability benefits are part of an uninsured employee welfare benefit plan or “multi-plan” governed by ERISA, which substitutes for disability benefits provided by the employer. 1 Because of this, the insured’s attorney asserts that New York laws and regulations that provide for offsets of disability benefits are preempted. The inquirer asks whether XYZ was correct in taking an offset of the disability insurance benefits.
Insurance Law § 5102 and Section 65.16 of the New York Compilation of Codes Rules and Regulations (“NYCRR”), Tit. 11, Pt. 65 (Regulation 68) are relevant to the inquiry. Both provide for loss of earnings, or lost wage, benefits under no-fault PIP coverage and also provide for certain offsets of those benefits by insurers. Insurance Law § 5102(b) provides as follows:
(b) “First party benefits” means payments to reimburse a person for basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle, less:
(1) Twenty percent of lost earnings computed pursuant to paragraph two of subsection (a) of this section. 2
(2) Amounts recovered or recoverable on account of such injury under state or federal laws providing social security disability benefits, or workers’ compensation benefits, or disability benefits under article nine of the workers’ compensation law, or medicare benefits, other than lifetime reserve days and provided further that the medicare benefits utilized herein do not result in a reduction of such person’s medicare benefits for a subsequent illness of injury.
The relevant part of 11 NYCRR § 65.16 reads as follows:
(b) Loss of earnings. In determining loss of earnings from work:
(1) benefits from other sources shall not be considered an offset against or a deduction from loss of earnings, unless article 51 of the Insurance Law expressly provides for such offset or deduction;
* * *
(iii) within the meaning of section 5102(a)(2) of the Insurance Law, insurers shall not take a deduction for contractual or voluntary long-term disability plans, which generally become effective six months after the date disability begins.
XYZ took an offset of the $170 per week allowable under Article 9 of the N.Y. Workers Compensation Law after the insured’s employer indicated that the insured was entitled to New York State disability, although the entire benefit was provided by the multi-plan. 3 An insurer has the right to offset benefits that are “recovered or recoverable” pursuant to Insurance Law § 5102(b)(2). Even if the disability benefits could have been recovered by the insured, but were not recovered, the offset may still be taken by the insurer. See Carlo Service Corp. v. Rachmani, 64 A.D.2d 579 (1st Dep’t 1979). 4
The insured signed the multi-plan’s subrogation agreement, which requires the insured to reimburse the fund for benefits paid out from any recovery. The relevant part of the agreement reads as follows:
I (the insured) agree to immediately reimburse the Fund, before all others, for the full amount of all benefits paid on my behalf by the Fund if I recover any amount in connection with the Accident from any party or parties (including my own insurer), whether such recovery is full or partial and no matter how such recovery is characterized, why or by whom it is paid, or the type of expense for which it is specified. I agree that the amount repaid to the Fund shall not be reduced to pay any attorney’s fees or costs incurred in connection with securing recovery related to the Accident but shall be the full amount of all benefits paid in connection with the Accident. I agree that, if less than the full amount paid by the Fund is received from any third party, the Fund shall be paid the amount received.
The agreement further reads:
[w]here I choose not to pursue the liability of a third party, I authorize and empower the Fund to litigate, compromise, or settle my claims against a third party, to the extent of the benefits paid by the Fund.
Clearly, the lien agreement contemplates subrogation of benefits received from no-fault insurers.
The insured’s counsel and union both assert that the multi-benefit plan at issue is covered by ERISA and, as a result, XYZ may not take an offset pursuant to Federal law. 29 U.S.C. § 1144(a), which states that ERISA preempts state law, reads as follows:
Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. This section shall take effect on January 1, 1975.
The insured’s union cites two cases to support the position that the insurer may not take an offset. In the first case, FMC Corporation v. Holliday, 111 S.Ct. 403 (1990), the United States Supreme Court held that self-funded plans under ERISA are exempt from state law and regulation insofar as such regulation relates to the plans. A state law or regulation “relates” to an employee welfare plan if it has a connection to or references such a plan. The Court has interpreted “relates” broadly with the goal of not subjecting plans to conflicting sets of state regulations. 5 However, FMC Corporation is not applicable to the current fact pattern because the offset taken by XYZ does not impact or restrict the multi-plan from taking its lien on recoveries by the insured from insurers.
In the second case cited by the insured’s union, Miranda v. Division 1181 ATU-New York Welfare Fund and Plan, 196 A.D.2d 222 (3rd Dep’t 1994) the court held that a union-supported multi-benefit plan may take a lien on the first $50,000 recovered from a third-party action. In reaching its decision, the court held that the plan is exempt from certain New York laws because of ERISA preemption. Therefore, an anti-subrogation provision in the Workers’ Compensation Law that would have prevented the lien is unenforceable. Neither the no-fault law nor the regulations promulgated thereunder preclude the subrogation of benefits received from XYZ by the multi-plan.
Both cases are silent as to whether an insurer may take an offset of benefits received by an insured from an ERISA multi-plan. However, the purpose of the offset provisions in Insurance Law § 5102 and 11 NYCRR § 65.16 is to prevent a double recovery by a claimant of no-fault benefits, where the insured has been – or could be – indemnified from one of the specified sources, including, as here, with respect to workers compensation disability benefits. However, under the facts presented, there is no double recovery because of the insured’s lien agreement with the ERISA multi-plan. There is, in fact, no amount that is “recovered or recoverable” pursuant to Insurance Law § 5102(b)(2), because the insured is required to reimburse the multi-plan. Generally, the provider of the other benefits has no right to recover the amounts, but here, because of ERISA pre-emption, the multi-plan does have such a right and has recovered the amounts from the insured. As such, unlike as in Carlo Service Corp., no other sources of benefits are available to the insured. If XYZ could offset the disability amounts, the insured would not receive the full amount of the benefit to which he is entitled. Such an outcome is at odds with the intent and public policy goals of the no-fault law, which is to ensure that injured victims of motor vehicle accidents are compensated for their injuries. Therefore, XYZ may not take an offset of the disability benefits received by the insured.
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.
1 A multi-benefit plan includes a broader array of benefits beyond disability benefits such as hospitalization, major medical, dental, prescription drug, optical and life insurance.
2 Insurance Law § 5102(a)(2) reads as follows: “Loss of earnings from work which the person would have performed had he not been injured, and reasonable and necessary expenses incurred by such person in obtaining services in lieu of those that he would have performed for income, up to two thousand dollars per month for not more than three years from the date of the accident causing the injury. An employee who is entitled to receive monetary payments, pursuant to statute or contract with the employer, or who receives voluntary monetary benefits paid for by the employer, by reason of the employee’s inability to work because of personal injury arising out of the use or operation of a motor vehicle, is not entitled to receive first party benefits for ‘loss of earnings from work’ to the extent that such monetary payments or benefits from the employer do not result in the employee suffering a reduction in income or a reduction in the employee’s level of future benefits arising from a subsequent illness or injury.”
3 Workers Compensation Law § 211(5) allows for an employer to meet its obligations under the law by participating in and contributing to a plan of an association, union or trustees.
4 In Carlo Service Corp., the court held that “the use of the term recoverable indicates that the no-fault insurer may deduct the amount of such benefits upon a mere showing of their availability; the right of the insurer to deduct is not contingent upon their actual receipt.” This principle was applied to disability plans in Coreno v. American Transit Insurance Company, 152 Misc.2d 150 (N.Y. Sup. Ct. Saratoga County 1991), where the mere existence of Railroad Retirement Act disability benefits permitted an insurer to an offset.
5 FMC Corporation involved a Pennsylvania law, which stated that there shall be no right of subrogation or reimbursement from a claimant’s tort recovery with respect to workers’ compensation benefits. Therefore, the benefit plan that provided the benefits under ERISA was restricted from such subrogation.