The New York State Supreme Court has ruled that the Ahlborn decision by the U.S. Supreme Court is inapplicable to workers' compensation liens in New York.

In the Ahlborn case (Arkansas Department of Health and Human Services v. Ahlborn, 547 US 268, 2006) the nation's highest court drastically reduced the lien a state could claim against a Medicaid recipient's personal-injury recovery. The court decided that since Medicaid pays only medical expenses, a Medicaid lien is enforceable only against the part of the recovery attributable to medical expenses, not against other elements such as pain and suffering.

The court also found that the settlement was one-sixth of the "actual value" of the case, and ruled that the state could therefore recover only one-sixth of its lien from the already-reduced portion of the recovery attributed to medical expenses.

Scheer & Friedman cases

In a pair of cases brought in state Supreme Court in Erie County, plaintiffs sought to apply the Ahlborn decision to the workers' compensation liens claimed on their personal-injury settlements. Under the state's Workers' Compensation Law, when compensation claimants bring a civil action related to their work injuries, the carriers have a lien for wages and medical benefits they have paid. These liens are enforceable against the entire recovery.

In Scheer v. State Insurance Fund and Friedman v. State Insurance Fund, companion cases brought by the same law firm and decided Oct. 16, the plaintiffs' attorney argued that since workers' compensation benefits pay for lost wages and medical benefits, the carrier's lien should be enforceable only against the portion of each recovery attributable to lost wages and medical treatment (excluding pain and suffering, etc.). Moreover, the attorney offered opinions of the actual value of the cases and asked the court to reduce the liens further because the cases settled for less than their actual value.

The court's conclusions

In a strongly worded decision, the court rejected the plaintiffs' reliance on Ahlborn. The court noted the unique tradeoff in New York's workers' compensation scheme intended to balance the interests of workers and employers. On the one hand, injured workers are recognized as a favored and socially insured class, entitled to receive wages and medical benefits from their employer without proving fault and without regard to their own fault. On the other hand, as a cost-containment measure, when an injured worker sues a party at fault, the employer or its carrier may recoup those benefits by means of a lien on any recovery. This lien is considered inviolable and may not be reduced based on the factors used in Ahlborn.

Thus, regarding the request to limit the lien to only the wage and medical portions of the recovery, the court ruled that the carrier's lien "is enforceable against the entire amount of the recovery or settlement in the third-party action (albeit after subtraction of attorneys' fees and other litigation costs). Consequently, the funds to which the lien attaches properly include any sums earmarked for pain and suffering or other elements of damages not covered by workers compensation."

As for reducing the lien based on the case's claimed full value, the court stated, "there is no occasion under the New York scheme for inquiring into whether and to what extent the case may have been settled by the injured worker for less than its true value or his actual total damages."

In short, the court held, "absent a declaration of its unconstitutionality, the United States Supreme Court has nothing to say about the proper interpretation of New York law, and it bears repeating that Ahlborn has nothing to do with New York's workers' compensation scheme in any event."

While Ahlborn's application to other liens may still be untested, these rulings make clear that it is inapplicable in the workers' compensation arena.

Ralph Visano and Thomas Etzel are staff attorneys with the New York State Insurance Fund. They can be reached at rvisa@nysif.com and tetze@nysif.com. Visano wrote the State Insurance Fund's brief in the Scheer and Friedman cases, and Etzel argued the cases in court.