Aetna Life and Cas. Co. v. Nelson

• Decision Date: 03 April 1986
• Citation: 67 N.Y.2d 169,492 N.E.2d 386,501 N.Y.S.2d 313
• Parties: , 492 N.E.2d 386 AETNA LIFE AND CASUALTY COMPANY, Respondent, v. Kenneth R. NELSON, Individually and as Guardian ad Litem of Gloria A. Nelson and as Natural Guardian of Sheryl Nelson, Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 313

501 N.Y.S.2d 313

67 N.Y.2d 169, 492 N.E.2d 386

AETNA LIFE AND CASUALTY COMPANY, Respondent, v. Kenneth R. NELSON, Individually and as Guardian ad Litem of Gloria A. Nelson and as Natural Guardian of Sheryl Nelson, Appellants.

Court of Appeals of New York.

April 3, 1986.

John J. Nicit, Waterloo, for appellants.

Robert J. Clune, Ithaca, for respondent.

OPINION OF THE COURT

WACHTLER, Chief Judge.

The defendants, injured in a one-car accident on a State highway, have been compensated twice for the same medical expenses and lost earnings; first by their own insurance company under the No-Fault Law (Insurance Law art. 18 [now art. 51] ) and subsequently by the State in settlement of a suit brought in the Court of Claims. In the case now before us, the insurance company seeks to recoup the benefits it paid to the defendants by enforcing a statutory lien against that portion of the damages they received from the State which represents reimbursement for losses paid by the company (Insurance Law § 673[2] [now § 5104(b) ] ). The only defense raised is the Statute of Limitations. Both of the courts below rejected the defense and granted summary judgment to the insurance company. The defendants have appealed by leave of this court.

Two questions are presented by the appeal. First, whether the insurer's suit is governed by the three-year Statute of Limitations applicable to liabilities created or imposed by statute (CPLR 214[2] ), or by the six year "residual" Statute of Limitations (CPLR 213[1] ). Second, whether the insurer's cause of action against the defendants accrued when the defendants' judgment against the State was entered, or later, when the case was finally settled on appeal and the State actually paid the defendants.

On August 14, 1977 defendant, Kenneth Nelson, was injured when he lost control of his vehicle and collided with a utility pole after skidding on water which had accumulated on Route 89 near Ithaca. Two passengers in the car were also injured. His infant daughter received minor injuries, but his wife sustained permanent brain damage rendering her incompetent. Their insurer, Aetna Life and Casualty Company, paid them "first party benefits" under the No-Fault Law, for medical expenses and lost earnings (Insurance Law § 671[2] [now § 5102(b) ] ). The Nelsons subsequently filed a claim against the State for damages on the theory that the State had been negligent in maintaining the highway. After a trial, the Court of Claims returned a verdict for the defendants, finding the State primarily liable for the injuries (Nelson v. State of New York, 105 Misc.2d 107, 431 N.Y.S.2d 955). The Court of Claims decided the case on September 8, 1980 and on September 23, 1980, judgment was entered against the State.

The State immediately appealed on the ground the award was excessive, thus staying enforcement of the judgment (CPLR 5519[a][1] ). The defendants cross-appealed. The parties then entered into a settlement reducing the judgment, and discontinued the appeals. An order approving the settlement was entered on April 28, 1981. The State paid the defendants on May 28, 1981. It is conceded that a portion of the damages paid by the State represents reimbursement for lost earnings and medical expenses, including amounts paid by Aetna as first-party benefits.

On November 7, 1983, Aetna commenced this action against the defendants to recover the amounts which the company had paid the defendants as first-party benefits. The company relied on Insurance Law § 673(2) which gives an insurance company a lien against any recovery obtained by a "covered person" (here the Nelsons) against a "non-covered person" (in this instan the State), "to the extent of benefits paid or payable by it to the covered person". The only defense raised was the Statute of Limitations. The defendants contended that the plaintiff's suit on the lien was governed by the three-year statute applicable to liabilities created or imposed by statute (CPLR 214[2] ), and that it accrued on September 23, 1980, when their judgment against the State was entered. Because Aetna's suit for recoupment was commenced more than three years after that date, the defendants moved to dismiss on the ground that the suit was time barred. Aetna moved for summary judgment.

The trial court denied the motion to dismiss. The court concluded that the insurance company's suit was to prevent unjust enrichment, an action recognized in equity, that the statute creating a lien thus did not create a new cause of action, and that the defendants' suit was governed by the six-year Statute of Limitations applicable to actions for which no other period is prescribed by law (CPLR 213[1] ). In the alternative, the court held that if the three-year statute is applicable, the company's action was timely because it did not accrue until the defendants had actually received the "double payment" from the State and thus became obligated to reimburse their insurer. Finally, noting that no other issues were in dispute, the court granted the company's motion for summary judgment.

The Appellate Division affirmed. The court held that the three-year statute applied because the defendants' liability, if not "created" by statute, was now "imposed" by the statute creating the lien. With respect to accrual, the court agreed with the trial court that the insurer's action for recoupment accrued when the defendants' suit against the State was finally settled, and not when the judgment was entered, noting that enforcement of the judgment after entry was stayed as a result of the State's appeal (112 A.D.2d 15, 490 N.Y.S.2d 376).

We agree with the Appellate Division that the three-year statute is applicable, but not for the reasons stated by that court. CPLR 214(2) prescribes a three-year Statute of Limitations for "an action to recover upon a liability, penalty or forfeiture created or imposed by statute". It has been suggested that because the statute refers to liabilities "created or imposed" by statute, it applies not only to liabilities created by statute, but also to common-law liabilities codified or adopted by statute (see, 35 N.Y.Jur., Limitations and Laches, § 56, at 555). However, we have consistently held that the statute, like its predecessor, only governs liabilities which would not exist but for a statute (State of New York v. Stewart's Ice Cream Co., 64 N.Y.2d 83, 484 N.Y.S.2d 810, 473 N.E.2d 1184; State of New York v. Cortelle Corp., 38 N.Y.2d 83, 378 N.Y.S.2d 654, 341 N.E.2d 223; see also, Koerner v. State of New York, 62 N.Y.2d 442, 478 N.Y.S.2d 584, 467 N.E.2d 232; Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86). It does not apply to liabilities existing at common law which have been recognized or implemented by statute (State of New York v. Stewart's Ice Cream Co., supra; State of New York v. Cortelle Corp., supra ). Thus, if the statutory lien merely codifies or implements an existing liability, the three-year statute would be inapplicable.

Insurance Law § 673(2) offers an insurer two means for recouping first-party benefits paid to a covered person for injuries caused by a noncovered person. ^* Both of the procedures bear some relationship to common-law actions. First, the insurer has the right to proceed directly against the tort-feasor, a right akin to the common-law right of subrogation (Safeco Ins. Co. v. Jamaica Water Supply Co., 83 A.D.2d 427, 444 N.Y.S.2d 925, affd 57 N.Y.2d 994, 457 N.Y.S.2d 245, 443 N.E.2d 493). Second, the insurer may proceed against the injured party by asserting a lien against any recovery obtained by that party from the tort-feasor. This option also had a counterpart in the case law, which, even before the adoption of the statutory lien, permitted this type of recoupment under certain circumstances (see, e.g., 31 N.Y.Jur., Insurance, §§ 1632, 1633; Rights and Remedies of Insurer Paying Loss as Against Insured Who Has Released or Settled With Third Person Responsible For Loss, Ann., 51 A.L.R.2d 697; cf. Frank v. Liberty Mut. Ins. Co., 61 N.Y.2d 994, 475 N.Y.S.2d 379, 463 N.E.2d 1231; but also see, Healy v. Rennert, 9 N.Y.2d 202, 213 N.Y.S.2d 44, 173 N.E.2d 777; Coyne v. Campbell, 11 N.Y.2d 372, 230 N.Y.S.2d 1, 183 N.E.2d 891).

We have previously held that Insurance Law § 673(2) creates a new liability to the extent it permits an insurance company to exercise the first option mentioned above, by seeking recoupment directly from the tort-feasor (Safeco Ins. Co. v. Jamaica Water Supply Co., supra). In that case, it was noted "that the 'no-fault' concept embodied into statute (Insurance Law, art. 18) modifies the common-law system of reparation for personal injuries under tort law (Montgomery v. Daniels, 38 N.Y.2d 41, 46, 378 N.Y.S.2d 1, 340 N.E.2d 444), and that first-party benefits are a form of compensation unknown at common law, resting on predicates independent of the fault or negligence of the...