Evan H. Krinick
Evan H. Krinick ()

Several years ago, police investigators in California found a number of stolen vehicles, including some that were being dismantled, on Julio Valdes’ property. He later pleaded no contest to owning and operating a chop shop and was sentenced to two years and four months in prison. The trial court then set a victim restitution hearing.

Prosecutors asked the court to order restitution in the amount of $14,441.01 payable to a collection agency as the representative of Farmers Insurance. The amount was based on a claim of $12,307.26 plus a deductible of $500 and the net salvage value of $1,633.75. After the trial court awarded the full amount to Farmers, the defendant appealed, arguing that the order had to be reversed because there was no evidence that the insurance company was a direct victim of the defendant’s crimes.

This past January, in People v. Valdes, a California appellate court reversed the restitution award.1 It explained that, under California law, insurance companies are not direct victims entitled to criminal restitution simply by virtue of the fact that they have reimbursed a criminal victim for losses pursuant to their contractual responsibilities to do so. In other words, the Court of Appeal concluded, the trial court should not have awarded victim restitution to the insurance carrier’s representative because neither the representative nor the insurance company itself was a direct victim of the defendant’s crimes.

That was California. In New York, the rule is quite different. Here, insurance carriers are not barred from restitution awards in criminal cases. Indeed, New York law is clear that insurance carriers that cover insureds’ losses arising from fraud or other crimes are entitled to restitution under New York’s Penal Law and a long line of court decisions.

The Statute

New York Penal Law §60.27, titled “Restitution and reparation,” explains that a court “shall” consider restitution or reparation (together, “restitution”)2 to the victim of a crime and “may require” restitution as part of the sentence imposed upon a person convicted of an offense. When a district attorney advises the court about the extent of injury or economic loss or damage of the victim and the amount of restitution sought by the victim, the court “shall” require, unless the interests of justice dictate otherwise, that the defendant make restitution of the fruits of the offense and reparation for the victim’s actual out-of-pocket losses. Moreover, if a court does not order restitution, it must clearly state on the record its reasons for declining to do so.

When a court requires restitution to be made, it must make a finding as to the dollar amount of the fruits of the offense and the actual out-of-pocket loss to the victim caused by the offense. The term “offense” includes the offense for which the defendant was convicted as well as any other offense that was “part of the same criminal transaction” or that was contained “in any other accusatory instrument disposed of by any plea of guilty by the defendant to an offense.”

Section 60.27(5) caps the amount of restitution that a court may require at $15,000 in the case of a conviction for a felony and $10,000 in the case of a conviction for any offense other than a felony. There are exceptions to these limits, however, including one exception that permits a court in its discretion to impose restitution in an amount equal to the loss of the victim’s property, and another exception that allows a court to order reimbursement for medical expenses actually incurred by the victim prior to sentencing as a result of the offense committed by the defendant.

The Kim Case

People v. Kim,3 decided by the New York Court of Appeals more than 15 years ago, is the leading New York case involving restitution to insurance companies.

Here, the defendant pleaded guilty to counts of attempted murder in the second degree, attempted robbery in the first degree, and criminal possession of a weapon in the second degree. The charges arose out of a failed holdup by the defendant and two accomplices at the home of the victim, whom the defendant had shot three times.

The case reached the Court of Appeals after the defendant challenged the order of restitution imposed by the county court at the time of his sentencing, in the sum of $37,754.07. That amount represented the aggregate amount of the victim’s medical expenses incurred in the treatment of his gunshot wounds; of that amount, the victim’s health insurance carrier had paid $35,301.35. In the sentencing colloquy concerning restitution, the defendant’s attorney indicated to the court that there was no dispute over the accuracy of the amount of the victim’s medical expenses set forth in the presentence report. Rather, the defendant objected, among other things, to his “having to reimburse the insurance company” for that portion of the medical expenses it had paid.

The court found the defendant’s contention that the county court had erred in imposing a duty to make restitution for the portion of the victim’s medical expenses paid by his health insurer to be “unavailing.” It pointed out that Section 60.27 authorizes restitution “for the actual out-of-pocket loss caused” by the criminal offense,4 and that it also includes within the definition of “victim” a crime victim’s “representative,” as defined in Executive Law §621(6) to include “but not [be] limited to an agent, an assignee,***a receiver, an administrator.”

The court then held that, in light of what it characterized as the “strong legislative policy favoring restitution for all actual monetary losses caused by criminal conduct,” an insurance company’s payment of an injured crime victim’s medical expenses was sufficient to bring the carrier within the category of representatives of the victim that were eligible for receipt of restitution.5

Moreover, the court added, the insurer was legally obligated under its insurance contract to pay for the victim’s medical expenses for treatment of injuries caused by the defendant’s crimes and, as such, could “properly be classified as a victim in its own right” for those out-of-pocket losses.6

The Amount

The court in Kim found that restitution in excess of the $15,000 ceiling imposed by Section 60.27 for a felony was authorized in that case because it represented reimbursement “for medical expenses actually incurred by the victim.”7 A district court in Nassau County ordered restitution in excess of the cap for a non-felony offense in People v. Lightfoot.8

The case arose early one morning when the defendant, in the course of his employment with the Metropolitan Suburban Bus Authority (MSBA), drove his MSBA vehicle into a home. As a result of the accident, the homeowner sustained nearly $20,000 worth of structural damages to his home and over $5,000 to its contents. Within a month of the incident, the homeowner had been fully compensated for his damages by his own insurance company.

The defendant was found guilty after trial of a misdemeanor and the court held a restitution hearing to determine the amount, if any, of restitution to be paid by the defendant. The district court found that good cause had been shown to impose a greater restitution requirement on the defendant than the cap amount. Confirming that court-ordered restitution to an insurance company that had reimbursed the actual victim for the loss was appropriate, it ordered the defendant to make $25,260.93 in restitution as a condition of his probation.

In People v. Consalvo, the Appellate Division, First Department, affirmed an order of restitution in the amount of $500,000.9

The loss in the Consalvo case was caused by the defendant’s Medicaid fraud. The First Department found that the trial court had properly relied on statistical evidence when determining the amount of the award. It observed that the standard of proof at a restitution hearing was preponderance of the evidence, not beyond a reasonable doubt, and said that there was no reason statistics should not be used in a restitution hearing.

The appellate court also found that the trial court had properly considered the fact that the defendant had produced only 347 of the 2,147 patient charts that he was required to keep pursuant to Medicaid regulations, adding that it would “not insist on exactness in a case where the party’s own failure to maintain records prevent[ed] it.” The First Department rejected the defendant’s argument that the trial court had improperly “punished” him for failing to produce records, concluding that the court had drawn “appropriate inferences” from the records’ absence, within the context of other evidence.

Conclusion

Under well-established New York law, courts may order restitution to insurance companies that suffer losses due to insurance fraud or other crimes. Although this may not necessarily provide a significant disincentive to criminal defendants to avoid their behavior, it can permit insurers to recover some of the losses they suffer from criminal acts. Of course, restitution is not the only method available to an insurance company to recover its losses from criminal acts. Section 60.27 specifically provides that any payment made as restitution does not limit, preclude, or impair any liability of a defendant for damages in any civil action or proceeding for an amount in excess of that payment.

Evan H. Krinick is managing partner of Uniondale’s Rivkin Radler and can be reached at evan.krinick@rivkin.com.

Endnotes:

1. No. E057407 (Cal. Ct.App. Jan. 16, 2014).

2. As U.S. District Judge Jack B. Weinstein explained in an arson case, statutory-based restitution “is a payment to victims of crime by an offender to cover losses incurred as a result of the crime. The payment can take the form of either money or services to the victim or the state.” U.S. v. Ferranti, 928 F.Supp. 206 (E.D.N.Y. 1996). Interestingly, in this decision, Weinstein traced the history of restitution from the law of Moses (which required “fourfold restitution for stolen sheep and fivefold for the more useful ox”) to the Code of Hammurabi (c. 1700 B.C.) and the Roman Law of the Twelve Tables (449 B.C.), through the “elaborate and detailed systems of victim compensation…developed by the Anglo-Saxons” and the shifting views on criminality and punishment in England that began with the reign of William the Conqueror, and then to the enactment of modern statutes in the United States.

3. 91 N.Y.2d 407 (1998).

4. Penal Law §60.27(1) (emphasis supplied).

5. The court also upheld the portion of the county court’s order imposing joint and several liability on the defendant for the entire loss caused by the actions of the defendant and his accomplices.

6. Numerous other cases in New York permit restitution to a victim’s insurance company. See, e.g., People v. Chery, 126 A.D.2d 659 (2d Dept. 1987). For a more recent ruling, see, e.g., People v. Russell, 41 A.D.3d 1094 (3d Dept. 2007) (trial court was permitted to, and appropriately did, order that defendant pay a portion of the restitution to the victim’s insurance company as reimbursement for amounts it paid to the victim to cover losses due to defendant’s larceny).

7. Penal Law §60.27(5)(b) (emphasis supplied).

8 147 Misc.2d 918 (D.Ct. Nassau Co. 1990). At the time, the statutory cap for non-felony offenses was $5,000.

9. 303 A.D.2d 202 (1st Dept. 2003).