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New York General Obligations Law § 5-335

New York General Obligations Law § 5-335

Limitation of Non-statutory Reimbursement and Subrogation Claims

The General Obligations Law now prohibits health insurers and other benefit providers from seeking reimbursement from the proceeds of any settlement of personal injury, medical malpractice or wrongful death actions for medical services they rendered to the claimant.

Click here to read the statute.

New York General Obligations Law § 5-101 defines a “benefit provider” as “any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group.”

The General Obligations Law now prohibits a plaintiff who has settled with a defendant from being charged with violating a health insurer’s alleged equitable or contractual subrogation rights.
In the past, when a claimant made a claim for personal injuries against a wrongdoer the heath insurer would routinely send a “lien letter” to the claimant’s counsel asserting a contractual or equitable right of reimbursement to recoup the monies paid to the claimant for medical care. There were even occasions where the health insurer would attempt to intervene in a litigation to assert its rights subrogation rights.

While the courts generally held that the heath insurer did not have an actual “lien”, they did find that the health insurer did have a right to subrogation and reimbursement.

The General Obligations Law now prohibits a plaintiff who has settled with a defendant from being charged with violating a health insurer’s alleged equitable or contractual subrogation rights. This law essentially overrules two Court of Appeals decisions, Teichman v. Community Hosp. of Western Suffolk, 87 N.Y.2d 514 (1996), and Fasso v. Doerr, 12 N.Y.3d 80 (2009), to the extent they recognize a health insurers non-statutory subrogation claim when there is a settlement of a personal injury action.

The law now presumes that a settlement of a personal injury claim does not include any compensation for the cost of health care services, loss of earnings or other economic loss. Therefore, there is no double recovery and no right of reimbursement for the health insurer.

The law now presumes that a settlement of a personal injury claim does not include any compensation for the cost of health care services, loss of earnings or other economic loss.
This is a helpful change in law to both plaintiffs and defendants when attempting to settle a claim. There were times in the past where the right of reimbursement made it difficult to settle a claim. Take for example a claim where the injuries are catastrophic but either the liability may be questionable or the defendant’s insurance liability policy was limited. The medical expenses would far exceed any recovery the plaintiff may hope to receive. In such a case, both the plaintiff and the defendant may have their own motivations to settle the claim. The limited settlement funds, however, made it difficult to help compensate the injured plaintiff while at the same time reimbursing the health insurer. The new law does away with this issue. All of the available settlement funds now go to the injured party.

The law still does not allow double recovery of these expenses. If there is an award at trial for medical expenses and they have been covered by health insurance, the court will reduce the award based on the collateral source rule (CPLR § 4545). The law also does not apply to a statutory right of reimbursement or subrogation such as Workers’ Compensation or Social Services liens. The statute also preserves the right of subrogation for insurers providing Additional Personal Injury Protection.

The new law also remedies the inequity where a health insurance carrier was able to recover medical expenses through its subrogation rights even though the plaintiff was unable to recover these expenses due to the collateral source rule.

In connection with this change, the Collateral Source Rule has also been amended.

CPLR § 4545

The new General Obligations Law ends insurance subrogation rights to settlements unless there is a statutory right to reimbursement. Many issues will still be left for the courts to decide, but the law provides a good first step in assisting parties in settling claims.

4 Comments
  1. In GOL 5-335 wherein it states “plaintiff” does that also refer to “claimant” where there is no lawsuit? Or, does a lawsuit have to be commenced in order to receive the payout?

    • Without more facts, we are not really sure of the nature of your question. In general, however, the law prohibits insurance companies from seeking reimbursement for medical expenses they have made due to an accident. It does not matter if there is a lawsuit or not. However, a patient can still execute a lien where they would be responsible to pay a doctor for any unpaid bill. Hope this helps. Best wishes,
      Law Offices of Stuart DiMartini

      • i’m trying to avoid commencing a lawsuit (buying an index number). Apparently, the insurance company won’t pay the claimant the monies because GOL 5-335 states “plaintiff” and not “claimant” and they are afraid of a lawsuit. I suggested a Hold Harmless Agreement, but they still seem to want the Index number purchased. i guess what i’m trying to find out is there any situation where it is noted that “plaintiff” means “claimant” according to the statute. thank you for your help

  2. The second paragraph provides: “Except where there is a statutory right of reimbursement, no party entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement by a benefit provider and a benefit provider shall have no lien or right of subrogation or reimbursement against any such settling party, with respect to those losses or expenses that have been or are obligated to be paid or reimbursed by said benefit provider.”

    It would be our opinion that this language insulates the settling carrier from any possible subrogation claim. We do not have any case law on the issue, however.

    Also, we have never encountered this problem. It should be a non-issue. But carries do want they want. A hold harmless should be enough.

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