On October 11, 2007, the Court of Appeals affirmed the Third Department's decision in the matter of Burns v. Varriale holding that when a person is classified a permanent partial disability by the Workers' Compensation Board, there is no certainty to the continuation of the future payment stream and therefore, no non-speculative way to calculate the present value of the future payment for Kelly purposes. Thus, in a PPD scenerio, notwithstanding the vacation or holiday from future benefits, the plaintiff will not be entitled to an apportionment of attorney's fees based on such future benefits.

As you know, workers' compensation carriers have a lien on benefits paid but the lien is reduced by approximately one-third representing the carrier's equitable share of the costs plaintiff incurred (in legal fees and disbursements) in securing the third party recovery and the lien reimbursement. In Matter of Kelly, the Court of Appeal noted that equitably, the carrier should also have to pay a proportionate share of plaintiff's costs in terms of the savings from having to pay future benefits. Depending upon the net amount plaintiff received, the lien could be reduced, expunged entirely and sometimes, the carrier would actually have to pay the plaintiff some "fresh" money in addition to a full lien waiver.

In Burns, the Court of Appeals held that in cases involving death, permanent total disability or a scheduled loss of use payment, the Kelly rule still applies because the present value of future compensation benefits is readily asertainable. However, in the case of a PPD, the Board's determination does not entitle the claimanit to weekly compensation benefits at a specific rate over his life or over a set period and thus, the carrier's future benefit cannnot be quantified by actuarial or other reliable means.

So what does this mean? In the case of a PPD, the workers' compensation carrier not only has the right to take a vacation from future benefits equal to the net recovery received by the plaintiff in the third party suit, but also, to recover the full 2/3 lien with no reduction based on Matter of Kelly.

Since the 1996 amendments to the Workers' Compensation Law (insulating employers [and therefore, employer liability carriers] from suit at common law except in the case of a grave injury), settlements have been a little more difficult because the workers' compensation carriers no longer had any incentive to contribute fresh money and no real incentive to negotiate the lien amount unless Matter of Kelly served to reduce or eliminate it. Now, Burns will make settlements even a little more difficult because workers' compensation carriers have NO incentive to do anything other than insist on a full recovery of the net lien. Based on this, we can expect that plaintiffs' attorneys will factor in the cost of the lien to all settlement negotiations. In other words, general liability carriers (except in the case of a grave injury) are now expected to shoulder the full burden of the workers' compensation system. What do I mean? Out of any settlement paid by the general liability carriers, the workers' compensation carrierrecovers 2/3 of its outlay for benefits. Additionally, while the general liability carrier has to pay for future lost earnings and medicals, the workers' compensation carrier gets a vacation from having to pay those costs/benefits.

Reprint with permission from Stephen M. Cohen of Fabiani, Cohen & Hall, LLP (www.fclip.com.)