Tort-plaintiff is entitled to “made whole” rule vis-à-vis his no-fault carrier’s subrogation right against his tort settlement.

Tort-plaintiff (“plaintiff”) had sued tort-defendant (“defendant”) for plaintiff’s personal injuries resulting from their two-car accident.  Plaintiff’s no-fault carrier had paid plaintiff $100,000 in APIP (additional personal injury protection), which the no-fault carrier has the right to recoup from plaintiff’s tort settlement.

Defendant’s carrier eventually offered defendant’s policy limit of $100,000 to settle plaintiff’s case.  Plaintiff accepted the offer and served a supreme-court order to show cause on plaintiff’s no-fault carrier requesting a declaration that the no-fault carrier’s subrogation rights were limited to extended economic loss (that is, to the portion of the settlement allocable to the category of damages for which APIP benefits were meant to compensate).  Respondent did not oppose supreme court’s adjudicating the dispute over its subrogation rights but contended that plaintiff owed it the full amount of the APIP benefits paid (some $39,500).   Supreme court directed plaintiff to pay the no-fault carrier the full amount of APIP benefits paid.   Plaintiff thereupon formally tendered the amount and pursed his appeal.

The no-fault carrier argued preliminarily that plaintiff’s tender of payment made the appeal moot, but the Fourth Department held that it did not, because the parties’ rights would be affected directly by the outcome of the appeal.

Plaintiff argued that, under the “made whole” rule, the no-fault carrier had no right of subrogation because plaintiff’s damages exceed the amount of the settlement.

[Explanatory note with regard to subrogation: If defendant’s insurance is insufficient to compensate plaintiff fully for plaintiff’s loss, plaintiff retains a right of action against defendant personally.  In those cases where plaintiff has his own insurance that covers the balance of plaintiff’s loss (first-party insurance), and plaintiff’s first-party insurer in fact pays him, plaintiff’s first-party insurer acquires plaintiff’s right to pursue the defendant for the amount that plaintiff’s first-party insurer has paid.  To state it another way, plaintiff’s first-party insurer is subrogated to plaintiff’s claim against defendant.

[The “made whole” rule then provides that if defendant’s insurance is inadequate to fully compensate plaintiff for his losses, plaintiff’s first-party insurer, whom the insured has paid to assume the risk of loss, has no right to share in the proceeds of the insured-plaintiff’s recovery from the tort-defendant.  In other words, plaintiff’s first-party insurer may subrogate against only those funds and assets that remain after plaintiff-insured has been fully compensated.  This designation of priority of interests assures that the injured party’s claim against the tort-defendant takes precedence over the subrogation rights of his first-party insurer.

[Here plaintiff’s own insurer was his no-fault carrier which paid plaintiff “additional personal injury protection” (APIP) benefits, also known as extended economic loss.  Therefore plaintiff’s no-fault carrier would be subrogated only to plaintiff’s recovery after plaintiff was made whole and then only for the portion of settlement attributable to economic loss, not to plaintiff’s pain and suffering.]

Supreme court here, however, refused to apply the made-whole rule or to prorate the settlement between extended economic loss and pain and suffering, and instead had directed plaintiff to pay his no-fault insurer the entire amount of APIP benefits.

The Fourth Department agreed with plaintiff that supreme court should have applied the made-whole rule but remanded the matter for a determination as to (a) whether the settlement made plaintiff whole and (b) what portion of the $100,000 settlement was for plaintiff’s extended economic loss and what portion was for plaintiff’s pain and suffering.

The Fourth Department therefor reversed supreme court’s judgment (which had the additional defect of failing to declare the rights of the parties) and remitted the matter for the required determinations and for a judgment declaring the rights of the parties in accordance therewith.

Grinage v Durawa [in re ACA Insurance Co., respondent], 2016 NY Slip Op 07429 (4th Dep’t Nov. 10, 2016);  http://nycourts.gov/reporter/3dseries/2016/2016_07429.htm.

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