OGC Opinion No. 07-09-23
The Office of General Counsel issued the following opinion on September 20, 2007, representing the position of the New York State Insurance Department.
Offset of lost wages
May an insurer offset lost wages already paid pursuant to a No-Fault PIP policy from a settlement collected pursuant to a SUM policy?
No. An insurer may not offset lost wages already paid pursuant to a No-Fault PIP policy from a settlement collected pursuant to a SUM policy.
The inquirer reports that a claimant for both No-Fault PIP and SUM benefits from the same insurer applied for and received Social Security disability benefits, which was to serve as an offset to the claimed lost wages under the No-Fault PIP policy pursuant to § 65-3.19 of NYCRR, Tit. 11, Pt. 65 (Regulation 68). The insurer did not offset the benefits from the lost wages, and the payment received from Social Security was not reimbursed to the insurer by the claimant. The claimant’s SUM claim was resolved for $25,000 with a general release tendered in that amount from the insurer. A settlement check for the SUM claim was issued in the amount of $19,396, together with correspondence that stated that the amount paid was reduced by the amount of the lien asserted by the insurer’s No-Fault Department for monies owed by the claimant because the claimant had failed to reimburse the insurer for the amounts received from Social Security.
Insurance Law § 5102 and 11 NYCRR § 65-3.16 are relevant to the inquiry; both provide for loss of earnings, or lost wage, benefits under a No-Fault PIP policy. Insurance Law § 5102(b) provides as follows:
(b) “First party benefits” means payments to reimburse a person for basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle, less:
(1) Twenty percent of lost earnings computed pursuant to paragraph two of subsection (a) of this section.
(2) Amounts recovered or recoverable on account of such injury under state or federal laws providing social security benefits, or workers’ compensation benefits, or disability benefits under article nine of the workers’ compensation law, or medicare benefits, other than lifetime reserve days and provided further that the medicare benefits utilized herein do not result in a reduction of such persons’ medicare benefits for a subsequent illness or injury.
11 NYCRR § 65-3.19 sets forth the process by which Social Security disability benefits shall be offset from the claimant’s lost wages as follows:
(d) When it becomes apparent that an applicant, who is receiving no-fault first party benefits, will be disabled for more than one year, the insurer shall proceed as follows:
(1) forward to the applicant in triplicate, the prescribed agreement to pursue social security disability benefits (NYS form NF-8) and a self-addressed, stamped return envelope. The applicant shall bring this form to the Social Security Administration (SSA) and, when completed, one copy will be retained by the SSA, one will be retained by the applicant and one will be returned by the applicant to the insurer in the self-addressed, return envelope;
(2) pursuant to the agreement, the insurer shall continue to pay first-party benefits until the applicant begins receiving social security benefits.
(3) the insurer, when notified by the Social Security Administration of the amount of the award and the effective date thereof, shall, as of the effective date, reduce the applicant’s first-party benefits in an amount equal to the monthly social security disability benefits awarded on account of the applicant’s injury, inclusive of awards made to the applicant’s spouse and dependents on account of the injury. However, if the applicant paid an attorney’s fee out of the proceeds of the award, pursuant thereto, the insurer shall not take credit for that portion of the award in computing the amount of the reduction.
(4) in the event that the applicant fails to execute the agreement, the insurer, may, beginning the 27th week after the accident, or 35 calendar days after the agreement was forwarded to the applicant (the extra five calendar days allowed are for mailing) in the event the 27th week has passed, estimate the social security disability
benefit it believes the applicant is entitled to on account of the automobile accident and begin reducing the applicant’s first-party benefits accordingly. If it is later determined that no such social security disability benefits were due the applicant or that the estimate made by the automobile insurer was too high, the insurer shall pay the applicant for benefits due but shall not on that account be responsible for an attorney’s fee or interest on the late payment; and
(5) to the extent any reimbursement due the insurer pursuant to the agreement is not made by the applicant, the insurer may thereafter deduct such amounts from any future no-fault benefits due on the claim.
An insurer is entitled to offset the Social Security disability benefits received by a claimant from the lost wages collected by the claimant. Under the fact pattern presented here, however, the insurer failed to recover the amounts owed to it by the claimant in accordance with the means set forth in 11 NYCRR § 65-3.19.
SUM coverage is designed to protect an insured that is in a motor vehicle accident with another vehicle whose owner is negligent and has no insurance or low liability limits for third- party bodily injury coverage. See Insurance Law § 3420(f)(2) and NYCRR, Tit. 11, Pt. 60-2 (Regulation 35-D).
11 NYCRR § 60-2.3 sets forth insurance coverage that an SUM endorsement may not duplicate. The relevant portion of the prescribed SUM endorsement reads as follows:
11. Non-Duplication: This SUM coverage shall not duplicate any of the following:
(a) benefits payable under workers’ compensation or other similar laws;
(b) non-occupational disability benefits under article nine of the Workers’ Compensation Law or other similar law;
(c) any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;
(d) any valid or collectible motor vehicle medical payments insurance; or
(e) any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.
The coverages provided by SUM and No-Fault PIP policies are separate and distinct. A SUM policy covers damages for bodily injury arising out of negligence, exclusive of the basic economic loss coverage provided by a No-Fault PIP policy.
11 NYCRR § 60-2.1(b)(2)(c) sets forth the only offset applicable to SUM policies as follows:
(b)(2)(c) the maximum amount payable under the SUM coverage shall be the policy’s SUM limit reduced and thus offset by motor vehicle bodily injury liability insurance policy or bond payments receive from, or on behalf of, any negligent party involved in the accident.
The Insurance Law and the regulations promulgated thereunder contain no provisions that permit an SUM insurer to offset lost wages payable under a No-Fault PIP policy. Only a No-Fault PIP insurer may do so. Therefore, a SUM insurer violates the Insurance Law by offsetting Social Security disability payments received by a claimant collecting lost wages paid under a No-Fault PIP policy from a settlement under a SUM policy.
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.