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November 16, 1979

Marguerite T. O'CONNOR, as Administratrix of the goods, chattels and credits of Daniel J. O'Connor, deceased, Plaintiff,
LEE HY PAVING CORP., and Davis E. Clem, Defendants.

The opinion of the court was delivered by: DOOLING

In this action under Estates, Powers and Trusts Law § 5-4.1 to recover for his immediate family's pecuniary injuries resulting from the death of Daniel J. O'Connor plaintiff recovered a judgment for $ 1,031,520 on July 13, 1979. The decedent's death had occurred in the course of his employment by Leonard Farber Company. Fireman's Fund Insurance Company (hereinafter "Fireman's") was Leonard Farber Company's workmen's compensation carrier, and it paid the statutory benefits under the Workers' Compensation Law through August 22, 1979, aggregating $ 20,225; the statutory liability continues at the rate of $ 95 a week.

After judgment, plaintiff's counsel, aware of course of Fireman's lien on the recovery under Section 29 subdiv. 1 of the Workers' Compensation Law ("WCL"), wrote Fireman's requesting that its full lien (of $ 20,225) be applied to attorneys' fees since the disposition of the case would relieve Fireman's of liability for payments that, using life expectation tables, would exceed $ 150,000. Counsel cited Castleberry v. Hudson Valley Asphalt Co., 97 Misc.2d 578, 412 N.Y.S.2d 89 (Orange County 1978). Fireman's answered by requesting full recovery for its lien less attorney fee as provided for in Section 29. Fireman's added that, "Payment of such fee does not constitute a reduction of our lien or consent to settlement." Plaintiff then moved, under WCL § 29 subdiv. 1, for an order vacating the compensation lien on the third party recovery (against Lee-Hy and Clem) and apportioning the lien for attorneys' fees incurred in effecting the recovery pursuant to Section 29 subdiv. 1. Counsel contends that Fireman's monetary benefits from the judgment far exceed the lien paid to date and that its share of the fees should be commensurate with the benefit it derived from the third party judgment. Counsel argues that the weekly benefit, extended over the minority of the youngest of decedent's three children and thereafter over the balance of his widow's expected life, will amount to $ 139,932. Adding the amount paid through August 29th, the total exposure of Fireman's has been a little over $ 160,000, it is argued, and from that it is further argued that apportioning to Fireman's a part of the fee equal to Fireman's payments to the date the matter is resolved is more than fair. The fee agreement provided for a fee of 271/2%; with about $ 10,000 of disbursements, fee and disbursements could total about $ 291,000. See Estates, Powers and Trusts Law § 5-4.4(b).

Fireman's answers that the plain sense of the statutory language, its history and structure require the conclusion that the fee and disbursements be apportioned by deducting from the amount of Fireman's lien the amounts paid out to date a part of the total fee and disbursements determined by the ratio of the lien to the total recovery.

 Section 29 subdiv. 1 preserves the insured injured workman's right to sue third party wrongdoers without making him elect to surrender statutory compensation, but he must sue within six months after compensation has been awarded. In such case, the compensation insurance carrier has a lien on the recovery (whether by judgment or settlement)

. . . after the deduction of the reasonable and necessary expenditures, including attorney's fees, incurred in effecting such recovery, To the extent of the total amount of compensation awarded under or provided or estimated by this chapter for such case . . . and to such extent such recovery shall be deemed for the benefit of such . . . carrier. (Emphasis added.)

 To step back, before 1937 Section 29 had required the workman to elect between compensation and a third party suit; if he took compensation, the award of compensation effected a statutory assignment of his third party claim to the carrier, and if he sued, the carrier then was required (as now under § 29 subdiv. 4) to "contribute only the deficiency, if any, between the amount of the recovery against such other person actually collected, and the compensation provided or estimated by this chapter for such case." See Solomone v. Degnon Contracting Co., 194 App.Div. 50, 184 N.Y.S. 735 (3rd Dept. 1920) (quoting statute in concurring opinion). Matter of Mundt v. Wm. Spencer & Sons, 250 App.Div. 693, 295 N.Y.S. 888 (3rd Dept. 1937), modified in another respect, 276 N.Y. 677, 13 N.E.2d 57 (1938), made it clear that in computing the carrier's deficiency liability (where the third party recovery was less than the statutory liability) the credit to the carrier's deficiency liability for the third party recovery was not to be reduced by deducting the contingent fee paid to the lawyer in the third party suit: the statutory beneficiary was treated as if he or she had received the whole recovery unreduced by the fee she had to pay to effect it.

 In 1937 the election requirement was removed from Section 29; it was provided that the employee could both sue and take compensation, and it was then provided that the carrier would have the lien provided by the language quoted above.

 In the law as first enacted, Section 29 had also provided that if the employee did not sue and the carrier did sue, the entire cause of action passed to the carrier; in a death case the surviving widow and children had no interest in the recovery even if it exceeded the carrier's payments. Travelers' Ins. Co. v. Brass Goods Mfg. Co., 239 N.Y. 273, 146 N.E. 377 (1925). That was changed, in 1935, to provide that if in the carrier's suit it should

. . . recover from such other, either by judgment, settlement or otherwise, a sum in excess of the total amount of compensation awarded to such injured employee or his dependents and the expenses for medical treatment paid by it, together with the reasonable and necessary expenditures, incurred in effecting such recovery, it shall forthwith pay to such injured employee or his dependents, as the case may be, two-thirds of such excess, and to the extent of two-thirds of any such excess such recovery shall be deemed for the benefit of such employee or his dependents.

 When the compensation awarded requires periodical payments the number of which cannot be determined at the time of the award, the probable total amount is to be computed from the survivorship annuitants table of mortality and the remarriage tables for the purpose of computing the amount of the excess.

 Following the 1937 changes, first the Appellate Division, Hobbs v. Dairymen's League Cooperative Assn., 258 App.Div. 836, 15 N.Y.S.2d 694 (3rd Dept. 1939), and then the Court of Appeals, Curtin v. City of New York, 287 N.Y. 338, 39 N.E.2d 903 (1942), decided that the lawyer's fee should be deducted from the recovery from the third party in computing the carrier's credit against its deficiency liability. Referring to the new language in subdivision 1 of Section 29 providing for a deduction of the expense of recovery from the third party judgment in computing the carrier's subdivision 1 lien, the Court of Appeals said (Id. at 343, 39 N.E.2d at 905):

In that provision the Legislature has, in plain words, given recognition to the principle that where one person without fault incurs expenses in creating a fund which inures to the benefit of another, he should be reimbursed from that fund for the expenses so incurred. In the application of that principle, there is no ground for distinction between a case where recovery has been had by a claimant after he has made claim for statutory compensation and a case where the proceeds of a recovery have been collected before the claim is made.

 That is, the attorney's fee deduction would increase the carrier's deficiency liability and diminish the fund over which its subdivision 1 lien extended.

 The symmetry of treatment of the three deficiency situations employee's suit recovering less than the compensation payments, computation of the deficiency of the carrier, and recovery by the carrier's suit of less than its total compensation liability seems fair superficially. The cost of obtaining the recovery is deducted from it, and only the net recovery realized is used in the accounting between the parties. But it is a limited fairness, fair to the employee because in each situation his statutory rights are not diminished ...

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