A New York appeals court told a disability insurer it can't claw back benefits it paid an injured worker.
It began with a fall. On May 4, 2022, the worker slipped in a parking lot and was hurt. The accident happened off-hours and had nothing to do with his job - but it kept him from working. So he tapped short-term disability benefits, coverage his employer provided and ShelterPoint Life Insurance Company underwrote.
He then sued the parking lot's owners over the poorly kept lot. ShelterPoint, looking to recoup the $2,346 it had paid, put a lien on anything he won. The case settled in November 2023 for $125,000, and the insurer moved to collect. The worker asked a judge to strike the lien. The judge did, and ShelterPoint appealed.
On July 1, 2026, the Appellate Division, Second Department, affirmed. The insurer lost on two independent grounds.
The first was Workers' Compensation Law § 227, the statute ShelterPoint relied on. It hands a disability carrier a lien on money recovered from a third party - but only when the recovery can be "deemed for the benefit" of the carrier. In practice, that means the carrier can recoup its payout only where the settlement pays the worker back for lost wages, avoiding a double payment. That piece was missing. "[T]he complaint filed by the plaintiff sought to recover damages only for pain and suffering, not lost wages," the court noted, and the lien failed "on that basis alone."
The second was General Obligations Law § 5-335, the state's anti-subrogation rule. It presumes that a personal-injury settlement "does not include any compensation for the cost of health care services, loss of earnings or other economic loss" already covered by an insurer. The law spares a few categories - Medicare, Medicaid, no-fault, and "an insurance contract providing workers' compensation benefits." Short-term disability, the court said, is "separate and distinct from workers' compensation benefits," so it doesn't qualify.
ShelterPoint warned that reading the statute this way would gut § 227. Not so, the court replied: the two laws can be "read together in a way that harmonizes both." A carrier's right to recover "is not absolute," and short-term disability payments generally can't be deemed for the insurer's benefit.
The court's reasoning drew a clear line. A § 227 lien reaches only money a settlement pays for lost wages. Where an injured person pleads and settles for pain and suffering alone, the court found nothing the carrier could recover.
