Matter of Augello v. Hastings Plastics Corp., 51 N.Y.2d 773 (1980)

When an injured employee settles a malpractice claim against a third party (e.g., a doctor) without the consent of the workers’ compensation insurer, the settlement only affects the portion of the workers’ compensation award attributable to the malpractice itself, not the compensation for the initial injury.

Summary

Augello injured his arm at work and underwent surgery, which ultimately led to amputation. He filed for workers’ compensation and also sued the hospitals and doctors for malpractice, alleging the medical care worsened his condition. He discontinued the malpractice suit without the consent of the workers’ compensation insurer. The Workers’ Compensation Board initially ruled that the malpractice action was not a third-party action under Section 29, but later reversed course and denied further benefits. The Court of Appeals reversed, holding that the unauthorized settlement only impacted benefits related to the malpractice, not the original injury. This ensured compensation for the initial injury while preventing a double recovery for the malpractice.

Facts

1. On February 26, 1971, Augello injured his right arm while working at Hastings Plastics.
2. The following day, surgery was performed on his arm.
3. On May 26, 1972, his arm was amputated.
4. He filed a workers’ compensation claim.
5. Augello also sued hospitals and doctors, claiming malpractice aggravated his injury.
6. On October 7, 1976, he discontinued the malpractice action without the workers’ compensation carrier’s (Royal Globe Insurance Co.) consent.

Procedural History

1. The Workers’ Compensation Law Judge-Referee initially ruled the malpractice action was not a third-party action and allowed further recovery for the original injury.
2. The Workers’ Compensation Board reversed, holding the malpractice action was a third-party action, and its discontinuance without the carrier’s consent barred further recovery.
3. The Appellate Division affirmed the Board’s decision.
4. The Court of Appeals reversed and remitted the case to the Workers’ Compensation Board for further consideration.

Issue(s)

1. Whether a worker’s settlement of a malpractice action against a third party, without the consent of the workers’ compensation insurer, bars all further recovery under the Workers’ Compensation Law, even for the initial injury.

Holding

1. No, because the compromise of the malpractice action affects only that portion of the compensation award attributable to the malpractice, not the compensation for the original, work-related injury.

Court’s Reasoning

The court reasoned that the aggravation injuries due to malpractice are a direct consequence of the initial compensable injury, and the employee is entitled to compensation for the ultimate disability resulting from that initial injury. The court relied heavily on Matter of Parchefsky v. Kroll Bros., 267 N.Y. 410, emphasizing that recovery in the malpractice action cannot include compensation for the original injury. The court stated, “The injured employee is entitled to receive compensation for the result of the original injury apart from the result of the negligent treatment of the original injury… Recovery in the malpractice actions cannot include compensation for results of the original injury apart from the result of the malpractice.” The court emphasized that the insurer’s subrogation rights are limited to the damages caused by the malpractice. The court concluded that the compromise of the malpractice action only forecloses recovery of compensation benefits to the extent that such benefits are attributable to the malpractice itself. The case was remitted to the board to determine the benefits attributable to the initial accident only, apart from any malpractice aggravation. This approach prevents double recovery for the malpractice while ensuring the employee is compensated for the original work-related injury. The court sought to balance the employee’s right to pursue a malpractice claim with the insurer’s right to be protected against unauthorized settlements that could prejudice their subrogation rights.