General Obligations Law § 5-335 Bars Subrogation of Statutory Short-Term Disability Benefits Despite Workers’ Compensation Law § 227

Trombetta v. Eklecco Newco, LLC, 2026 NY Slip Op 04222 (App. Div. 2d Dep’t July 1, 2026).

1. Introduction

This Second Department decision addresses a recurring settlement problem in personal-injury litigation: whether an insurer that paid an injured person’s short-term disability (off-the-job) benefits can recover those payments from the injured person’s third-party personal-injury settlement by asserting a lien/subrogation right.

The plaintiff, Michele Trombetta, slipped and fell in a parking lot owned/maintained by defendants Eklecco Newco, LLC, et al. The injury occurred outside the scope of employment and off-hours. Trombetta received short-term disability benefits under a policy underwritten by nonparty-appellant ShelterPoint Life Insurance Company (“ShelterPoint”). After Trombetta settled the tort action for $125,000, ShelterPoint sought to enforce a $2,346 lien for disability benefits it had paid.

The key issues were:

• Whether Workers’ Compensation Law § 227 authorizes ShelterPoint’s lien/subrogation claim against the settlement proceeds; and
• Whether General Obligations Law § 5-335—New York’s “anti-subrogation in settlements” statute—bars any such recovery for short-term disability benefits.

2. Summary of the Opinion

The Appellate Division affirmed the order declaring ShelterPoint’s lien “invalid and unenforceable.” The court gave two independent reasons, either of which defeats the lien:

• Workers’ Compensation Law § 227 is conditional: it permits a disability carrier lien only to the extent the third-party recovery can be “deemed for the benefit” of the carrier—i.e., where the recovery compensates the plaintiff for lost income such that reimbursement prevents double recovery. Here, the plaintiff pleaded only pain and suffering, and the parties did not contend the settlement included lost wages; therefore the settlement could not be “deemed for the benefit” of ShelterPoint.
• General Obligations Law § 5-335 independently bars the lien: § 5-335(a) conclusively presumes that a personal-injury settlement does not include “loss of earnings or other economic loss” to the extent those losses were paid (or are payable) by an insurer, and it eliminates insurer liens/subrogation against the settling person for those losses. The statutory exceptions in § 5-335(c) include “workers’ compensation benefits,” but short-term disability benefits are “separate and distinct” from workers’ compensation; thus ShelterPoint does not fall within the carve-out.

3. Analysis

3.1. Precedents Cited

A. The Workers’ Compensation framework and the distinct nature of disability benefits

• Balcerak v County of Nassau, 94 NY2d 253 (explaining the broad, remedial purpose of workers’ compensation as a comprehensive social program for work-related injuries). The court invoked Balcerak to set the baseline: workers’ compensation serves a distinct statutory and policy function.
• Matter of Richardson v Fiedler Roofing, 67 NY2d 246 (distinguishing the “entirely different history and purpose” of the Disability Benefits Law: short-term weekly benefits for non-work-related sickness/disability). This precedent is central to the opinion’s interpretive move: because disability benefits are not workers’ compensation benefits, the workers’ compensation exception in GOL § 5-335(c) does not naturally extend to disability benefits.
• Matter of Flo v General Electric Co., 7 NY2d 96 (quoted in Richardson for the broad “social coverage” concept of disability benefits, covering hazards both within and outside working hours). This helps justify treating disability benefits as their own category for statutory interpretation—particularly when GOL § 5-335(c) enumerates exceptions.

B. Statutory interpretation canons applied to WCL § 227 and GOL § 5-335

• Tumminia v Staten Is. Univ. Hosp., 241 AD3d 17 (articulating interpretive rules: legislative intent; plain meaning). The court used Tumminia as the primary methodology framework.
• People v Schneider, 37 NY3d 187 (plain language as clearest indicator of legislative intent). Used to reinforce textualism where language is “precise and unambiguous.”
• Matter of Cheron v Simon, 216 AD3d 767 (plain language is determinative). Reinforces that the court will not rewrite statutes where text resolves the question.
• Matter of Diegelman v City of Buffalo, 28 NY3d 231 (courts may not “by implication supply” an omitted statutory provision; omission signals intentional exclusion). This is pivotal to rejecting ShelterPoint’s request to extend § 5-335(c)’s “workers’ compensation” exception to disability benefits.

C. Older disability-benefit subrogation decisions used for analogy

• Smith v Equitable Life Assur. Socy. of U.S., 19 AD2d 563, affd 13 NY2d 969 (limiting subrogation reach to the statutorily mandated disability amount; excess coverage not reachable). The court analogized the “deemed for the benefit” concept: only certain components of a recovery are properly treated as available for reimbursement.
• Travelers Ins. Co. v Voigt, 36 AD2d 1011 (cited with Smith for limiting recovery). Supports the notion that disability subrogation is not unlimited even under WCL § 227’s lien language.

D. Legislative history and purpose of GOL § 5-335

• Wurtz v Rawlings Co., 933 F Supp 2d 480 (ED NY), revd on other grounds 761 F3d 232 (2d Cir) (federal decision prompting 2013 amendments clarifying exceptions where statutory reimbursement is allowed). The Second Department treated Wurtz as part of the legislative-history narrative: the Legislature amended § 5-335 to clarify exceptions, and it did not add disability benefits to the list.
• Oak Beverages, Inc. v D.G. Yuengling & Son, Inc., 245 AD3d 93 (legislative intent as fundamental), quoting Patrolmen's Benevolent Assn. of City of N.Y. v City of New York, 41 NY2d 205. Used to justify consulting statutory purpose alongside text.
• People v Badji, 36 NY3d 393 (legislative history “not to be ignored, even if words be clear”). Supports the court’s belt-and-suspenders approach: the text is clear, but history confirms the result.
• Lubonty v U.S. Bank N.A., 34 NY3d 250 (courts may look to purpose and objectives consistent with text). Used to validate the purposive reading aligned with the statute’s settlement-protective function.

E. Persuasive federal authority on the statutory separation of benefit types

• Arnone v Aetna Life Ins. Co., 860 F3d 97 (2d Cir) (not binding, but persuasive). The Second Department relied on Arnone to reinforce that “workers’ compensation” is a distinct category and that attempts to treat other benefits as workers’ compensation for reimbursement/offset purposes are constrained by GOL § 5-335’s anti-subrogation regime.

3.2. Legal Reasoning

A. The court’s construction of Workers’ Compensation Law § 227: “shall be deemed for the benefit” is a real limitation

Although WCL § 227 contains strong lien language (“shall have a lien on the proceeds of any recovery”), the Second Department centered its analysis on the statute’s limiting clause: the lien exists only “to such extent such recovery shall be deemed for the benefit” of the carrier. The court treated this clause as requiring a nexus between the third-party recovery and the specific category of loss that the disability carrier paid—principally, wage replacement.

Applying that reading, the court found a dispositive fact: there was no record basis to infer that the settlement compensated lost wages. The complaint sought only pain and suffering, and no party claimed the settlement included lost wages. Therefore, the recovery could not be “deemed for the benefit” of the disability carrier, and the lien failed under WCL § 227 on the facts of the case.

B. Harmonizing WCL § 227 with GOL § 5-335: the anti-subrogation statute controls settlements for disability wage loss

ShelterPoint’s principal statutory-conflict argument was that reading GOL § 5-335 to bar its lien would “nullify” WCL § 227. The court rejected that framing and instead harmonized the statutes:

• WCL § 227 recognizes a disability carrier lien in third-party cases, but only where the recovery is properly attributable (i.e., “deemed”) to the loss the carrier paid.
• GOL § 5-335 supplies a categorical settlement rule: when a personal-injury case is settled, it is “conclusively presumed” that the settlement does not include “loss of earnings or other economic loss” to the extent those losses have been or will be paid by an insurer, and the settling person is not subject to insurer subrogation/reimbursement/lien for those amounts.

Under the court’s harmonization, once a case is resolved by settlement, GOL § 5-335 establishes as a matter of law that the settlement cannot be treated as including the wage-loss component paid by an insurer—thus it cannot be “deemed for the benefit” of the disability carrier for subrogation purposes.

C. The workers’ compensation exception in GOL § 5-335(c) does not include short-term disability benefits

The statutory exception in § 5-335(c) includes “a policy of insurance or an insurance contract providing workers’ compensation benefits.” The court held that this exception does not reach short-term disability benefits because disability benefits and workers’ compensation benefits are “separate and distinct.” The opinion emphasized that § 5-335(c) enumerates exceptions (Medicare, Medicaid, no-fault, workers’ compensation), and courts may not add to the list by implication (citing Matter of Diegelman v City of Buffalo).

D. Legislative history confirms the broad settlement-protective purpose

Even assuming ambiguity, the court found the bill jackets and legislative memoranda for the 2009 enactment and 2013 amendments confirm a purpose to prevent insurers from (i) intervening in litigation, (ii) impeding settlement, and (iii) extracting reimbursement from settlement proceeds, except where the Legislature specifically preserved statutory reimbursement rights (e.g., workers’ compensation).

Because short-term disability benefits were not added as an exception when the Legislature refined § 5-335, the court treated that silence as meaningful.

3.3. Impact

A. Practical consequences for personal-injury settlements in New York

• Disability carriers face a significant barrier to lien recovery from settlements. The decision reads GOL § 5-335 as a direct bar to subrogation/reimbursement of short-term disability benefits from personal-injury settlement proceeds.
• Greater settlement finality. The decision reinforces § 5-335’s aim: reduce post-settlement disputes and insurer attempts to reach settlement proceeds.
• Pleading/settlement allocation incentives. While the court relied on the absence of lost-wage allegations and any contention of wage-loss allocation, the broader holding under § 5-335 reduces the utility of “allocating” settlement proceeds to wage loss when an insurer paid wage-loss benefits—because the statute imposes a conclusive presumption in settlements to the extent losses were paid by an insurer.

B. Doctrinal significance

• First Second Department guidance on WCL disability benefits vs GOL § 5-335. The court framed the decision as addressing “for the first time” the interaction between statutory short-term disability benefits and § 5-335’s anti-subrogation provisions.
• Clear separation of benefit regimes. The opinion fortifies the doctrinal boundary between workers’ compensation (work-related) and disability benefits (off-the-job), which matters for any statute that treats “workers’ compensation benefits” as a distinct category.

4. Complex Concepts Simplified

• Subrogation / reimbursement: An insurer’s attempt to “step into the shoes” of its insured (or otherwise demand repayment) to recover amounts the insurer paid, from money the insured later obtains from a third party.
• Lien on settlement proceeds: A legal claim asserted against settlement funds before they are paid to the plaintiff, to ensure the lienholder is paid first (or paid from the fund).
• “Conclusive presumption” (GOL § 5-335): A rule that treats something as legally settled and not open to contrary proof—in these settlements, the law deems the settlement not to include certain paid-by-insurer economic losses, preventing insurers from recapturing them through liens/subrogation.
• Workers’ compensation vs. short-term disability: Workers’ compensation covers work-related injuries and is tied to employment duties; statutory disability benefits cover off-the-job sickness/injury that prevents working. This distinction controls whether § 5-335(c)’s workers’ compensation exception applies.
• Statutory harmonization: When two statutes appear to conflict, courts prefer an interpretation that gives effect to both. Here, the court treated WCL § 227’s lien as limited by what recoveries can be “deemed for the benefit” of the carrier, and treated § 5-335 as a legislative policy choice governing settlements that prevents deeming disability wage-loss payments recoverable from settlement proceeds.

5. Conclusion

Trombetta v. Eklecco Newco, LLC cements a settlement-focused rule: General Obligations Law § 5-335 bars a short-term disability carrier’s lien/subrogation claim against a personal-injury settlement, and the statute’s workers’ compensation carve-out does not extend to disability benefits. The Second Department also read WCL § 227 as conferring only a conditional recovery right—limited to amounts that can truly be “deemed for the benefit” of the carrier—thereby reinforcing that disability-benefit reimbursement is not automatic even before reaching § 5-335’s broader anti-subrogation bar.