Appellate Court Bars Insurer from Recovering Short-Term Disability Benefits Out of a Personal Injury Settlement

The Appellate Division recently held that a short-term disability insurer could not place a lien on a client’s personal injury settlement to recover benefits it had paid.

In Trombetta v. Eklecco Newco, L.L.C. (2026 NY Slip Op 04222), the plaintiff was injured in a slip-and-fall accident that occurred when he was not working, so his short-term disability carrier paid his benefits rather than workers’ compensation. After he settled his personal injury claim against the property owner, the carrier tried to recover those benefits from the settlement. Both the trial court and the appellate court rejected the lien on two grounds.

First, the governing statute, Workers’ Compensation Law §227, only allows recovery when a settlement compensates the plaintiff for lost wages. Here, the claim sought damages solely for pain and suffering, so there were no lost wage proceeds for the lien to reach.

Secondly, the court held that General Obligations Law §5-335 bars this type of lien outright. This law generally shields personal injury settlements from insurer liens, with narrow exceptions for benefits like Medicare, Medicaid, and workers’ compensation. The court found that short-term disability benefits are legally distinct from workers’ compensation benefits and do not fall within that exception.

Insurers frequently attempt to recover paid benefits from a client’s settlement, but not every lien is valid. This decision reinforces that short-term disability carriers have real limits on recovery, especially where the settlement doesn’t represent lost wages. Lien issues should always be reviewed on a case-by-case basis.

Giulia R. Marino, Esq.