Background
On May 4, 2022, Michele Trombetta slipped and fell in a parking lot owned and maintained by Eklecco Newco, LLC. The accident occurred off-hours and did not arise out of the scope of his employment at Enzo’s of Arthur Avenue. Unable to work due to his injuries, Trombetta collected short-term disability benefits totaling $2,346 from ShelterPoint Life Insurance Company, which underwrote the employer’s disability plan under Article 9 of the Workers’ Compensation Law—New York’s statutory disability benefits law for non-work-related conditions.
Trombetta commenced a personal injury action against Eklecco and settled for $125,000 in November 2023. ShelterPoint promptly asserted a subrogation lien on the settlement proceeds for the amount of disability benefits it had paid, relying on Workers’ Compensation Law § 227, which expressly authorizes an insurer that pays disability benefits to a worker injured by a third party’s negligence to seek reimbursement from any recovery the worker obtains. Trombetta moved by order to show cause to declare the lien invalid under General Obligations Law (GOL) § 5-335, the Legislature’s 2009 anti-subrogation statute barring insurers from recovering—through subrogation, assignment, or otherwise—amounts attributable to economic losses paid to a personal injury plaintiff who has settled or recovered.
The Supreme Court (Zugbie, J.) declared the lien invalid, reasoning that GOL § 5-335’s reference to “workers’ compensation benefits” in its exemption clause covered only Article 2 compensation benefits for work-related injuries, not the distinct short-term disability benefits of Article 9. ShelterPoint appealed, arguing that WCL § 227 creates a free-standing right to subrogation that GOL § 5-335 cannot nullify.
The Court’s Holding
The Appellate Division, Second Department affirmed. Writing for the court, Justice Voutsinas addressed—for the first time at the appellate level—the interaction between WCL § 227 and GOL § 5-335. The court traced the distinct statutory histories of the two laws: Workers’ Compensation Law Article 2, first enacted in 1914, covers work-related injuries; Article 9, enacted in 1949, provides a separate “Disability Benefits Law” for sickness or disability that may arise at any time, on or off the job. The court observed that short-term disability benefits and workers’ compensation benefits are “not the same” and that the Legislature well knew how to distinguish between them when it enacted GOL § 5-335 in 2009.
The court rejected ShelterPoint’s argument that WCL § 227—by expressly authorizing a lien—created an exception to GOL § 5-335’s otherwise sweeping anti-subrogation mandate. Construing both statutes together, the court held that WCL § 227’s lien authority could not override the general anti-subrogation bar of GOL § 5-335, because to read a WCL § 227 exception into GOL § 5-335 would effectively nullify the Legislature’s deliberate choice to protect personal injury plaintiffs’ settlement proceeds. If the Legislature had intended to exempt short-term disability benefit subrogation from GOL § 5-335, it would have said so explicitly. The lien was declared invalid and unenforceable.
Key Takeaways
- GOL § 5-335 applies to short-term disability benefit insurers asserting WCL § 227 subrogation liens against personal injury settlement proceeds, extinguishing such liens even when the underlying statute expressly authorizes them.
- Workers’ Compensation Law Article 2 (work-related injury compensation) and Article 9 (disability benefits for off-the-job illness or injury) are legally distinct; “workers’ compensation benefits” in GOL § 5-335(c)’s exemption refers only to Article 2.
- Employers and disability carriers that routinely assert § 227 liens on employee tort settlements must now re-evaluate those practices in New York; any such lien is invalid under GOL § 5-335 regardless of the statutory authorization in WCL § 227.
- Personal injury plaintiffs who previously had disability benefit subrogation liens asserted against their settlements may have viable claims to recover those amounts.
Why It Matters
This is a first-impression ruling for New York appellate courts. Short-term disability benefit insurers have routinely asserted WCL § 227 liens against personal injury settlements for decades, and the Second Department’s decision sweeps away that practice for New York personal injury cases. The ruling will affect every employer-sponsored disability plan in New York and every insurer—including large group disability carriers like ShelterPoint—that has relied on WCL § 227 as authority to recover from third-party settlements.
For NY plaintiffs’ counsel, the takeaway is clear: if a client received short-term disability benefits before or during a personal injury settlement, any lien asserted by the disability carrier should be challenged under GOL § 5-335. The decision also invites future litigation about whether the same analysis applies to other statutory subrogation rights—such as those of health insurers or ERISA plans—when they arise from benefits paid for off-the-job conditions covered by NY’s disability law.