When you settle or win a personal injury case, you might assume you will receive the required compensation for your damages. However, the truth is that many injured individuals walk away with far less than expected after insurance companies assert reimbursement or subrogation rights. When this happens, the New York make-whole doctrine typically comes into play.
This doctrine can affect how much money ultimately ends up in your pocket, and whether insurers can recover anything at all from your settlement. Understanding how it works, when it applies, and when it doesn’t is essential for anyone navigating a personal injury claim.
What Is the Make-Whole Doctrine in New York?
You may think of the make-whole doctrine in New York as a rule of fairness. It implies that an insurance company cannot be allowed to take money from your legal recovery until you have been fully compensated for your loss. This can include your medical bills, loss of earnings, and pain and suffering. To be made whole, you need to receive compensation for all these damages.
For example, if you settle your case for $100,000, but your actual losses are worth $500,000, you receive only 20%, a long way from being made whole. The make-whole doctrine argues that since your glass isn’t full yet, the insurance company has no right to reach in and pour some of that water into their own cup. You get to keep every drop until your glass overflows.
Why This Rule Exists
Insurance companies are in the business of taking risks. The deal is that you pay them monthly premiums, so if you get hurt, they cover the bills. The law believes it is unfair for an insurance company to hide behind you and wait for you to do the hard work of suing someone, only to jump in at the end and take a portion of the winnings.
New York Subrogation Laws
In many states, the made-whole rule is just a vague idea that lawyers have to argue about in front of a judge or jury. However, New York has a specific and powerful law in the form of the General Obligations Law § 5-335 or GOL 5-335 for short.
This law governs the limitation of reimbursement and subrogation claims. It creates a conclusive presumption regarding your settlement, which means the law automatically assumes that the money you get in a settlement is for your pain and suffering, and not for the medical bills the insurance company already paid. This is how the GOL 5-335 protects you.
- The assumption of pain and suffering. When you sign a settlement release, the law assumes that the money is for your non-economic losses. This includes elements insurance doesn’t cover, like the fact that you can’t pick up your kids anymore or that you live in constant pain.
- No double recovery. Insurance companies usually claim they need to be reimbursed to prevent you from getting paid twice for the same medical bill. GOL 5-335 shuts this down by saying that plaintiffs are not being double-paid; they’re being compensated for their misery, which the insurer didn’t cover.
- Ending the harassment. This law allows your lawyer to tell the insurance company to leave you alone without having to go to a lengthy court hearing to prove you weren’t made whole.
How the Make Whole Doctrine Affects Settlements in New York
To see why the make-whole doctrine is important, take a look at two hypothetical scenarios. In both cases, the victim has $50,000 in medical bills (paid by insurance) and settles the case for $100,000, while paying $35,000 as attorney fees.
Scenario 1: A State Without Make-Whole Protection
In some states, the insurance company has a first-priority right. As a result, if you have an insurance lien of $50,000, your insurer takes this amount. Minus the attorney fees, all you end up receiving finally is $15,000.
Scenario 2: New York
Given the make-whole doctrine of NY law, the insurer is presumed to have no right to your settlement, and there is no insurance lien. In this case, you end up receiving $65,000 after accounting for your attorney’s fees.
Does ERISA Override the Make-Whole Doctrine in New York?
One big exception that affects how much money you receive in a personal injury case comes in the form of the Employee Retirement Income Security Act (ERISA). This federal law can preempt/overrule New York state laws like GOL 5-335.
Do You Have an ERISA Plan?
If you get your health insurance through a large employer, like a Fortune 500 company or a big national union, and your employer self-funds the plan (meaning they pay the claims out of their own bank account rather than buying a policy from UnitedHealthcare or Aetna), you might be on an ERISA Self-Funded Plan.
If you have one of these plans, the make-whole shield is much thinner, and the language written in your employer’s insurance handbook usually controls everything. If it says the employer gets paid back first, even if the employee is not made whole, a federal judge might enforce that.
The Possible Upside
Even with an ERISA plan, your lawyer can use the make-whole doctrine as a negotiating tool. Besides, many plans wrongly claim to be self-funded ERISA plans. In this scenario, your attorney’s job is to demand the Summary Plan Description and Form 5500 to determine if the insurance company is telling the truth.
Other Liens That Don’t Care If You’re Whole
Other exceptions to the make-whole doctrine in New York can also take a cut of your settlement, regardless of how much you suffered.
Medicare and Medicaid
The government doesn’t play by the same rules as everyone else, and if you’re on a government-backed plan, you might have reason to worry.
- Medicare. Under federal law, Medicare has a super lien. If it pays for your treatment related to an accident, it stands to recover the money from your settlement. While there are ways to negotiate the amount down, the make-whole doctrine won’t make the lien disappear.
- Medicaid. Medicaid has a right to be reimbursed, too. However, thanks to some Supreme Court cases, it can only take money from the portion of your settlement that was specifically for medical expenses.
Workers’ Compensation
If you get hurt on the job, know that your workers’ compensation carrier has a Section 29 lien. This means it gets paid back out of your personal injury settlement for the medical bills and lost wage benefits. While your lawyer can get this lien reduced, it still exists.
How to Use the Make-Whole Doctrine to Your Advantage
If you are currently in the middle of a personal injury lawsuit and are wondering how to make this doctrine work for you or how to challenge an insurance lien under New York law, this is what you need to do.
Document Everything
If your case settles for the policy limits (meaning you took all the money the defendant had), it is strong evidence you weren’t made whole. In addition, maintain a diary that documents your pain, missed life events, and daily struggles. This helps your lawyer argue that the value of your emotional distress is significantly high and that the settlement barely scratches the surface.
Don’t Allocate Your Settlement
If you settle a case for $100,000, the insurance company might ask you to sign a paper saying $30,000 is for medical bills and $70,000 is for pain and suffering, and this is something you should not do. In New York, your attorney will likely insist on a general release that doesn’t allocate your settlement. This allows GOL 5-335 to kick in and presume that none of it was for medical bills.
The Policy Limit Strategy
If the person who injured you only has a $25,000 insurance policy, and you have a broken leg that required surgery, it is safe to assume that the $25,000 is not enough to make you whole. The make-whole doctrine is at its strongest in such cases, and your attorney can argue that it would be unfair for the insurance company to take $5,000 of that $25,000 settlement.
Why Your Attorney Is Your Best Defense
Lien resolution is a specialized field of law, and insurance companies use confusing terminology to try to trick you into admitting that their lien is valid. They might tell you that federal law mandates they be paid, which is often a half-truth designed to scare you.
When you have legal help, you can count on your attorney to:
- Audit the log. Often, insurance companies try to charge you for medical treatments that have nothing to do with your accident, like your annual physical or an unrelated flu shot.
- Verify the plan type. They will force the insurer to prove they have an ERISA plan.
- Threaten litigation. In some cases, the only way to get a lien company to back off is to threaten to haul them into a New York court, where they know the judge will likely side with the injured plaintiff under GOL 5-335.
Conclusion
New York recognizes that your health insurance company is a multi-billion-dollar entity that took your premiums for years, and it shouldn’t be allowed to profit off your pain. Whether it’s through the equitable power of the New York make-whole doctrine or the statutory protection of GOL 5-335, the law is on your side.
When you finally settle or win, remember that you have the right to be made whole before anyone else gets a seat at the table. Fortunately, with an experienced personal injury attorney by your side, you can ensure that you don’t have to part with any money that is rightfully yours.