New York Law Review

Tag: Aetna Life & Casualty Co. v. Nelson

  • Aetna Life & Casualty Co. v. Nelson, 67 N.Y.2d 169 (1986): Statute of Limitations for No-Fault Insurance Liens

    Aetna Life & Casualty Co. v. Nelson, 67 N.Y.2d 169 (1986)

    The statute of limitations for an insurance company to enforce a statutory lien against an insured’s recovery from a third party for the same losses covered by no-fault benefits begins to run when the insured actually receives payment from the third party, not when judgment is entered.

    Summary

    Aetna, an insurer, sought to recoup no-fault benefits paid to the Nelsons, who were injured in a car accident, by enforcing a statutory lien against the Nelsons’ settlement with the State of New York. The Nelsons had already received compensation from Aetna for medical expenses and lost earnings. The Nelsons argued that the three-year statute of limitations for liabilities created by statute barred Aetna’s claim. The Court of Appeals held that while the three-year statute of limitations applied, Aetna’s cause of action accrued when the Nelsons received payment from the State, not when the judgment was entered, making Aetna’s action timely.

    Facts

    Kenneth Nelson was injured in a car accident on August 14, 1977, when his car skidded on water and hit a utility pole. His wife suffered permanent brain damage, and Aetna paid them first-party benefits under New York’s No-Fault Law for medical expenses and lost earnings. The Nelsons sued the State for negligence in maintaining the highway, and the Court of Claims found the State liable. Judgment was entered against the State on September 23, 1980. The State appealed, staying enforcement of the judgment. The parties then settled, reducing the judgment, and the State paid the Nelsons on May 28, 1981. A portion of the settlement represented reimbursement for losses already covered by Aetna’s first-party benefits.

    Procedural History

    Aetna sued the Nelsons on November 7, 1983, to recover the first-party benefits, relying on Insurance Law § 673(2), which creates a lien in favor of the insurer. The Nelsons moved to dismiss, arguing that the three-year statute of limitations barred the claim, as it accrued on September 23, 1980, when judgment was entered against the state. Aetna moved for summary judgment. The trial court denied the motion to dismiss and granted Aetna’s motion for summary judgment. The Appellate Division affirmed, holding that the three-year statute applied, but the cause of action accrued upon settlement, not judgment. The Nelsons appealed to the Court of Appeals.

    Issue(s)

    1. 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]).

    2. 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.

    Holding

    1. Yes, because Insurance Law § 673(2) creates a new liability subject to the three-year statute of limitations (CPLR 214[2]).

    2. No, because the Statute of Limitations commenced when the defendants actually received payment from the State, not when the judgment was entered.

    Court’s Reasoning

    The Court of Appeals held that the three-year statute of limitations under CPLR 214(2) applies to liabilities that would not exist but for a statute. Insurance Law § 673(2) offers an insurer two means of recoupment: a direct action against the tortfeasor (akin to subrogation) and a lien against the injured party’s recovery from the tortfeasor. Both options create new liabilities subject to the three-year statute. The court reasoned that the No-Fault Law creates new and independent statutory rights and obligations to efficiently adjust financial responsibilities from car accidents. As to when the statute of limitations began to run, the court stated, “The Statute of Limitations begins to run once a cause of action accrues (CPLR 203 [a]), that is, when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.” The court emphasized that the lien could only be enforced against “any recovery” obtained by the insured, as expressed in Insurance Law § 673(2). The purpose of the lien is to prevent double recovery. Therefore, the insurer’s right to foreclose on the lien accrues only when the insured actually obtains funds representing a “double recovery.” The Court affirmed the order of the Appellate Division, finding that Aetna’s suit was timely.