National Union Fire Insurance Co. v. Farmers New Century Ins. Co., 8 Misc.3d 1004(A), 2005 WL 1429883 (Supreme Court, New York County 2005) (YATES, j)

On October 26, 2001, Wayne Wells, an employee of the URS Corporation, was involved in an automobile accident on his way home from work. As a result of the accident, Wells sustained serious injuries and filed a workers' compensation claim and a no-fault claim for payment of medical bills and lost wages. He also filed a claim for disability benefits with First UNUM Life Insurance Company and a personal injury action.

Farmers New Century Insurance Company was the no-fault carrier for Mr. Wells. URS was insured by National Union Fire Insurance Company for Workers' Compensation. AIG handles workers' compensation claims that URS employees bring under the National policy. AIG denied Mr. Wells workers' compensation benefits on the ground that he was not injured during the course of his employment. As a result of National's denial of coverage and pursuant to its insurance policy with the insured, Farmers alleged it paid first-party benefits to Mr. Wells. First UNUM, URS and claimant's major medical insurer also paid monies to Mr. Wells. Since other insurers paid benefits to the claimant, AIG allegedly alerted the Workers' Compensation Board of this fact and requested that the Board determine the amounts due as reimbursement from AIG.

On June 10, 2002, the Workers' Compensation Board issued a decision finding that claimant's injuries were work-related, entitling him to an award. On that date, AIG withdrew its objections to claimant's claim. By application dated January 7, 2004, Farmers commenced arbitration proceedings against National Union at Arbitration Forums, Inc. Farmers claimed it paid no-fault benefits to Mr. Wells from the date of the accident until June 10, 2002 in the amount of $ 55,460.45, and now was seeking reimbursement from National Union through arbitration.

After receiving notice of the intent to arbitrate, National Union commenced this proceeding for a stay of arbitration, arguing it could not be obligated to participate in the arbitration. First, National Union argued that the Workers' Compensation Board is vested with primary jurisdiction as to the applicability of workers' compensation or no-fault insurance coverage in work-related motor vehicle accidents. National then contended that the matter was already pending before the Workers' Compensation Board, that Farmers was included and involved in that action and that the only proper forum for determining the amounts, if any, which AIG was responsible to repay to respondent was the Board. In the alternative, National argued that if the court allowed the arbitration to proceed, then the court should add the claimant as an additional respondent in the arbitration proceeding, so that the arbitrator would be able to make an award, if any, against the proper party, the claimant himself.

Farmers opposed the petition, arguing that there was no basis for a stay. To avoid inconsistent decisions on the matter, a temporary stay of the arbitration was granted by this Court pending a decision by the Board on the issue of lien priority among the disability carrier, employer, and the no-fault carrier.

On July 29, 2004, a Workers' Compensation Board hearing was held. Frost. National alleged that Farmers failed to submit a brief to the Board explaining the reasons Farmers believed it was entitled to reimbursement. Following the hearing at which Farmers was allowed to participate, a decision was issued on November 19, 2004, finding that no-fault benefits were not reimbursable, as a matter of law, under the Workers' Compensation statute. The Board determined that the disability carrier was liable for paying benefits pending the outcome of the compensation litigation. Because the disability carrier was legally obligated to pay benefits during the period in question and the employer was not obligated to continue wage payments to claimant during the same period, the Board held that the disability carrier's lien had priority over the employer's lien. Therefore, the disability carrier was to be reimbursed in full for the period of time in which benefits were paid.

After the disability carrier's lien was satisfied, the employer could be reimbursed for "the difference between the proper compensation rate payable to claimant during that period and the amount reimbursed to the disability carrier."

The WCB judge also held that the compensation carrier was not entitled to a lien under Workers' Compensation Law section 29 on the amount of monies claimant received under his employer's underinsurance coverage. He reasoned that the lien and offset provisions of section 29 could only be applied against recoveries from third-party tortfeasors who were responsible for Wells' injuries. Furthermore, he found "irrelevant that the underinsured policy claimant received these proceeds from the employer because the employer was not the person whose negligence or wrong caused the claimant's injuries." The case was to continue on the issue of proper awards consistent with the decision.

Farmers argued that the dispute is subject to mandatory arbitration pursuant to Workers Compensation Law 29(1-a) and the loss transfer provisions of Insurance Law section 5105. National argued that if Farmers made any erroneous payments to claimant, AIG's remedy is to seek reimbursement of these monies directly from claimant or his medical providers. As well, National contended that if Farmers is entitled to reimbursement of any sum of money, it is not entitled to the amount claimed.

The Court held that "By definition, uninsured motorist coverage compensates for 'noneconomic' loss and economic loss in excess of basic economic loss, and shall not duplicate any element of basic economic loss. Workers' compensation benefits by definition are limited to reimbursement for basic economic loss."

Insurance Law section 5105 is the loss transfer statute. It provides that "(a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty one of this chapter has the right to recover the amount paid from the insurer of any other covered person to the extent that such other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire.... (b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility for the payment of first party benefits."

"Insurance Law section 5105," held the Court, "is inapplicable in this matter. The mandatory arbitration provisions are concerned with a party's status as an insurer or compensation provider. While the statutory scheme requires mandatory arbitration to resolve all disputes arising between insurers concerning their responsibility for the payment of first-party benefits or between compensation providers, the courts have held that a workers' compensation carrier is not bound to arbitrate a claim by a no-fault insurer for money it was obligated to pay during the time that the workers' compensation carrier was contesting the claim."

"Although a good case could be made for including a no-fault insurer's action to recover from a workers' compensation carrier within the mandatory arbitration provision... the statute did not encompass this kind of controversy. The failure of the Legislature to include a particular situation was an excellent indication that its exclusion was intended."

"That being the case, Farmers does not possess an arbitrable claim against AIG and the demand that arbitration be ordered is denied. As well, an insurer can present a claim to recover basic economic loss from the insurer of another covered person, if (a) one of the motor vehicles involved in the accident weighs more than 6,500 lbs. unloaded; or (b) is a motor vehicle used for the transportation of persons or property for hire. Under those circumstances, arbitration is mandatory. There was no evidence presented that the vehicles involved in the accident met this condition precedent to arbitration. The Court, by this decision, does not mean to imply that respondent is not entitled to reimbursement. The decision is limited merely to a finding that the parties have not agreed to arbitration and Insurance Law section 5105 does not impose arbitration upon them."

The Arbitration was permanently stayed.

by NY attorney Lawrence Rogak.

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