Palmer v. Allstate Ins. Co.

• Decision Date: 23 April 1984
• Citation: 475 N.Y.S.2d 436,101 A.D.2d 127
• Parties: William D. PALMER, et al., Appellants, v. ALLSTATE INSURANCE COMPANY, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 436

475 N.Y.S.2d 436

101 A.D.2d 127

William D. PALMER, et al., Appellants, v. ALLSTATE INSURANCE COMPANY, Respondent.

Supreme Court, Appellate Division Second Department.

April 23, 1984.

Bloom & Mintz, P.C., New York City (Thomas Torto, Brooklyn, of counsel), for appellants.

Shapiro, Shiff, Beilly, Rosenberg & Fox, New York City (Abraham L. Shapiro and Gerald Richman, New York City, of counsel), for respondent.

Before MOLLEN, P.J., and MANGANO, THOMPSON and NIEHOFF, JJ.

MOLLEN, Presiding Justice.

William D. Palmer and the United States Department of Labor, the petitioners, appeal from a judgment of the Supreme Court, Queens County, which denied confirmation of an arbitration award. The central issue is whether the arbitrator's failure to deduct Federal disability payments from an award of first-party benefits under the New York Comprehensive Automobile insurance Reparations Act (the No-Fault Insurance Law) was so irrational as to require vacatur. We begin with a review of the facts.

On December 31, 1976, William D. Palmer, a United States Postal Service employee, was injured as a consequence of a collision between the United States Postal Service truck he was operating and a motor vehicle insured by the respondent, Allstate Insurance Company. Pursuant to the Federal Employees' Compensation Act (FECA, U.S.Code, tit. 5, § 8101 et seq.) ¹ Palmer was reimbursed by the United States for lost wages and medical expenses amounting to $28,476.66.

In, or about, October, 1979, Palmer instituted a third-party action against the respondent's insured, seeking judgment in the amount of $750,000 for personal injuries he allegedly sustained as a consequence of the accident. By letter dated November 14, 1979, the United States Department of Labor notified Palmer's counsel, inter alia, that "Section 8132 of title 5 of the United States Code provides that in the event of a recovery from the Third Party, the Government must be reimbursed for the disbursements it made to or on behalf of the beneficiary." The Federal government, in short, "asserted a lien" against Palmer's recovery, if any, in the third-party action. ²

In or about October, 1980, Palmer sought arbitration under the New York No-Fault Insurance Law (see Insurance Law, § 670 et seq.) on behalf of himself and the United States Department of Labor. Arbitration was sought for the purpose of obtaining "first party benefits" (see Insurance Law, § 671, subd. 2) from the respondent for the medical expenses and lost wages which had been reimbursed to Palmer pursuant to the FECA.

On June 18, 1981, the arbitrator awarded Palmer $28,476.66. Noted in the arbitrator's opinion were the facts that Palmer had received $28,476.66 pursuant to the FECA and that the respondent "has not accepted nor rejected [Palmer's] claim for no-fault benefits; its only response to that claim was a request for information and documentation with regard to payments made to [Palmer] under the [FECA]." The arbitrator held that

"since the U.S. Government has elected not to be covered by the New York No-Fault Law, the vehicle which [Palmer] was operating is in the category of an 'Uninsured' motor vehicle within the purview of the New York No-Fault Law. There is a dispute between the parties whether the proceedings should have been brought against the carrier which insures a vehicle in [Palmer's] family (said carrier being unknown) or against this Respondent. However, that dispute should not impede the payment of first party benefits to [Palmer] in this matter, and the dispute as to which insurer is primarily responsible for payment should be left to the insurers themselves. This is especially so in view of the Respondent's failure to accept or deny the claim for no fault benefits of March 7, 1979."

By notice of motion dated April 21, 1982, the petitioners moved for an order "confirming the award in arbitration and directing that judgment be made in favor of [them] and against the respondent in accordance with the said arbitration award". ³ In his affirmation submitted in support of the motion, petitioners' counsel alleged that "[t]he respondent has been served with a copy of [the arbitrator's] award and has refused to make payment thereunder. Further, the respondent had not moved with respect to the award."

The respondent opposed the motion, alleging, inter alia, that

"[t]he award rendered was imperfectly executed in that the Arbitrator misapplied existing New York and Federal Law in finding that [Palmer] was entitled to recovery for first party no fault benefits under the circumstances of this case

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"[T]he law in the State of New York as well as in the Federal jurisdiction is that a recipient of Federal Employees Compensation Act benefits who brings a negligence action to recover damages for injuries suffered in a motor vehicle accident while operating a United States Postal vehicle has suffered no economic loss and cannot on behalf of himself or the United States Postal Service maintain a claim for economic loss under the New York No Fault Statute

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"Since the Arbitrator applied the wrong rule of law to the facts before him and permitted [Palmer] a double recovery for first party no fault benefits where such recovery is contra to applicable and existing Federal and State Law, the arbitration award herein should not be confirmed."

In reply, the petitioners' counsel argued that the test to be applied in reviewing no-fault arbitration awards is the "reasonable hypothesis" test, not the "wrong rule of law" test, as argued by the respondent. Counsel further argued that a "reasonable basis" for the arbitrator's award existed. Counsel noted that arbitration was sought by both Palmer and the Department of Labor, which was "asserting a lien against the No-Fault benefits recovered by Palmer * * * [T]he Department of Labor has an absolute right to recover the amount of FECA benefits which it paid to Palmer. Therefore, the Department of Labor will be receiving the proceeds of the award herein and under no view of the facts can it be said that petitioner Palmer has obtained a double recovery." Submitted as part of the reply was the affidavit of an official of the Department of Labor's Office of Workers' Compensation Programs of the Employment Standards Administration, in which affidavit the official stated:

"[t]he United States Department of Labor is entitled to reimbursement of the compensation benefits paid to [Palmer] pursuant to Sections 8131 and 8132 of Title 5, United States Code. These sections provide that when an injury or death for which Federal Compensation benefits are payable is caused under circumstances creating a legal liability in a person other than the United States to pay damages, the beneficiary shall refund the United States the amount of compensation paid to him out of any settlement or recovery against the person responsible for his injury."

By judgment dated October 4, 1982, Special Term, denied the motion to confirm the arbitrator's award. In its memorandum the court explained that

"[i]t is respondent's contention that the arbitrator incorrectly applied existing law and thereby exceeded his power or so imperfectly executed it so as to result in a double recovery to [Palmer] and required denial of confirmation.

"[Palmer], as set forth in the moving papers, has received full FECA benefits and was awarded an identical sum in first-party benefits by the arbitrator's decision. Contrary to subdivision (2)(b) of section 671 of the Insurance Law the award was not diminished by any amounts previously recovered under FECA. There is no indication that Palmer suffered any further economic loss that was not compensated for and, as such, he cannot now maintain a claim for first-party benefits on his own behalf or his employer

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"Despite whatever statutory rights which may exist in favor of the United States to seek recovery of the compensation benefits it paid from a faulty third-party * * * no right to a double reward exists in favor of [Palmer] individually. Under the circumstances, a rational basis does not exist in the record to support the arbitrator's award".

The petitioners appeal from Special Term's judgment.

At the outset, we note our agreement with the petitioners that

"[t]he test thus applicable for review of no fault arbitrations where error of law is in issue is essentially similar to that utilized for review of quasi-legislative determinations--whether any reasonable hypothesis can be found to support the questioned interpretation." (Matter of Shand [Aetna Ins. Co.], 74 A.D.2d 442, 454, 428 N.Y.S.2d 462; accord, Matter of Allstate Ins. Co. [O'Kelly], 81 A.D.2d 665, 666, 438 N.Y.S.2d 356.)

Whether an arbitrator's determination is correct or not, when it is "not so irrational as to require vacatur" (Matter of Shand [Aetna Ins. Co.], supra, 74 A.D.2d p. 455, 428 N.Y.S.2d 462), the award will be confirmed. We conclude that there is no "reasonable hypothesis" to explain the arbitrator's failure to deduct from the no-fault award the FECA payments made to Palmer. ⁴ Accordingly, Special Term's judgment denying confirmation should be affirmed.

In Montgomery v. Daniels, 38 N.Y.2d 41, 46, 378 N.Y.S.2d 1, 340 N.E.2d 444, the Court of Appeals observed that

"[u]nder the title, 'Comprehensive Automobile Insurance Reparations Act', article 18 of the Insurance Law (as added by L. 1973, ch 13, in full effect Feb. 1, 1974) provides a plan for compensating victims of automobile accidents without regard to fault. In essence, it is a two-pronged, partial modification of the pre-existing system of reparation for personal injuries suffered in automobile accidents under which system liability was grounded in negligence under classic principles of tort law. One prong deals with compensation; the other with limitation of tort actions.

"The first prong lays down the requirement that every owner of a motor vehicle provide himself, members of...