Although this law has been around for a number of years, the Firm gets many inquiries about this issue, so we thought it best to discuss it here. New York State enacted a law that prevents insurance companies who pay disability income benefits from offsetting any benefits they have paid to a victim of personal injuries who recovers damages from responsible parties.
In a 2017 case called Arnone v. Aetna Life Insurance Company, New York’s Federal Appeals Court, the Second Circuit, confirmed the applicability of the law and gave it a broad interpretation, rejecting all of the insurance company’s attempts to grab back money from injured New Yorkers.
The plaintiff, New York resident Salvatore Arnone, was seriously injured in New York on the site of his employer’s customer. He filed for and was granted disability benefits through an ERISA-governed, group long term disability plan administered and insured by Aetna.
Arnone also brought a personal injury action in New York State Court against his employer’s customer, which resulted in an $850,000 lump sum settlement. Aetna then reduced Arnone’s total disability benefits by $275,550 (50 percent of the estimated amount Arnone netted from the settlement), citing a plan provision permitting it to offset payments from other sources.
In suing Aetna to recover the offset benefits, Arnone relied upon this law, otherwise known as the New York Anti-subrogation Law, prohibiting a disability insurer from reducing benefits paid to the insured as a result of the insured receiving damages for personal injuries from another party. After an unfavorable ruling in the lower court, Arnone appealed.
Court of Appeals decision
The U.S. Court of Appeals for the Second Circuit first considered whether, if applied, New York’s statute would prohibit Aetna’s offset action (The law is called New York General Obligations Law Section 5-335(a)). The Court ruled that the law would apply. The law reads, in part, “When a person settles a claim…for personal injuries, … it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by an insurer” … and “An insurer shall have no lien or right of subrogation or reimbursement against any such settling person.”
Based on the language of the law, the Court ruled that Aetna’s decision to offset half of the net settlement amount against Arnone’s disability benefits would, under New York law, unlawfully deny him what he is entitled to under the plan. The Court expressly ruled that insurance companies like Aetna could not take back money out of the personal injury proceeds, and could not offset any future disability benefits payable to the insured either.
Next, on the question of whether this New York law should be controlled by the Federal law of ERISA (otherwise known as pre-emption), the Court ruled that New York’s Anti-subrogation Law is a law regulating insurance, and those types of laws are not controlled (pre-empted) by Federal ERISA Law.
Further, the Court held that the plan’s choice-of-law provision, which stated that the plan will be “construed” in accordance with Connecticut law, did not control this question of the application of New York’s Anti-Subrogation law.
Finally, the Court rejected Aetna’s argument that Arnone forfeited his rights to challenge the offset for failing to alert Aetna to the applicable section of New York law during the claims administration process. The Court was not persuaded that Arnone forfeited his right to rely on that statute in making his arguments against the offset.
The Court said: “[Aetna] is not entitled to insulate itself from the application of relevant state law by hoping that during the claims process its insureds – generally less knowledgeable and with fewer resources – fail to invoke by number a state law with which Aetna should already be quite familiar.”
This law along with the Federal Court’s interpretation of it is a sweeping, powerful ruling that protects New Yorkers’ long term disability benefits and prevents insurance companies from preying on New York’s injured workers.
If your long term disability insurance claim is being challenged or has been denied or terminated, give us a call. We have the experience, knowledge and tenacity to make sure insurance companies keep the promises they made to you. Contact us today for a free consultation.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack