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Recent Federal Court Decision Impacts Personal Injury Law in New York State

The New York lawyers at Block O'Toole & Murphy are always studying important legal decisions handed down by lower and appellate courts. Sometimes a decision can greatly impact the practice of lawyers. Often though, the decisions impact everyday people. This is a decision that impacts both the practice of law and the people that the law is intended to protect. We encourage you to read the decision, particularly if you have a present personal injury action in New York State. If you don't have the time or inclination to read the actual decision, we break it down for you below.

In a recent and potentially important decision, Wurtz v. The Rawlings Co., LLC (2nd Cir. 2014), the United States Court of Appeals for the Second Circuit, which includes New York, held that a New York State law is specifically directed to regulate the insurance industry and is not prevented from being enforced by a parallel federal ERISA statute.

Practically speaking, this decision has an impact on New York state personal injury plaintiffs that have private insurance coverage. At issue is New York General Obligations Law §5-335. Initially, this law sought to regulate the circumstances when an insurance company could recover monies forwarded for an insured medical expenses when the insured maintained a personal injury action. The then law curtailed an insurance company from being reimbursed for their expenses. Prior to the instant decision, a lower court decided that the federal ERISA statute preempted New York State General Obligations Law §5-335 and allowed health insurance carriers to assert a right, or a lien, to recover monies paid for healthcare related to a Plaintiff's injuries connected to a lawsuit. The lien would be paid back out of the plaintiff's settlement. To be abundantly clear, if an insurance company had advanced monies for an insured for medical treatment connected to a personal injury lawsuit, that insurance company was previously able to assert a lien for those monies and maintain a right to be paid back from any settlement proceeds. Consequently, injured plaintiffs were taking home smaller settlements after paying back the liens. This made them less interested in resolving legal disputes and taxed the already over-crowded court system. Some would reasonably wonder, why am I paying for insurance when I end up having to pay back the insurance company anyway for what they spent? It is indeed a fair question.

Liens from a health insurer can be very large if a plaintiff is traumatically injured and incurs significant medical expenses from surgeries and hospitalizations. Having a large lien that will be paid out of a plaintiff's settlement creates an obstacle to settling a personal injury action with defendants as the potential settlement amount would have to be large enough to pay back the lien and also provide appropriate compensation for the injured plaintiff.

Now, after this decision, the Second Circuit decided that the New York General Obligations Law §5-335 may be enforced, regardless of the competing ERISA statue, because the New York State law is specifically aimed at regulating the insurance industry. Specifically, the New York law eliminates the right of these employer sponsor health plans to recover from a plaintiff's personal injury settlement. Therefore the New York statute is not preempted by Federal Law. This decision will dramatically improve the ability to settle cases and provide injured plaintiffs with more significant financial recoveries.

Block O'Toole & Murphy is a law firm dedicated to fighting for personal injury victims. The trial lawyers at the firm have recovered more than $750,000,000 in verdicts and settlements for their injured clients. You can learn more about the firm by reviewing the firm website at You may also call them for a free consultation at 212.736.5300.

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