Dennis Glascott and Lisa Diaz-Ordaz ()
If you have ever been involved in a personal injury trial that resulted in a verdict containing a future damages award in excess of $250,000, then you are all too familiar with the complexities of CPLR Articles 50-A and 50-B. These statutes were enacted in 1985 and 1986 respectively, in the wake of the tort reform movement, and they radically changed the way that future damages verdicts are calculated and paid out to personal injury plaintiffs. Rather than being paid in one lump sum, the statutes mandate that future damages be paid in periodic payments.
It may sound simple enough, but in practice, it is difficult to describe these statutes as “user friendly,” and more than one commentator and a few appellate courts have questioned the continued need to preserve these statutory schemes. We take this opportunity to review the history of these statutes, including a discussion of their stated legislative purpose and practical shortcomings, in the hope that the Legislature might take up the challenge to revise, or perhaps do away with, these statutory provisions.
The Legislature’s Intent
The purpose of these statutes was to reduce litigation damages by implementing a structured payment system, rather than awarding a single lump sum payment for future damages at the present value, in medical malpractice and tort cases with large jury verdicts for future damages.1 The New York Court of Appeals explained that the Legislature’s goal through CPLR articles 50-A and 50-B was to provide plaintiffs with compensation for future health care costs and lost earnings as those expenses arose, at a discounted rate,2 rather than having juries calculate a lump sum judgment at the present value for future damages.
Defendants would benefit, the Legislature reasoned, because “paying a judgment in periodic installments reduces the overall cost…by permitting the insurer to retain and invest the balance of the award before the installments come due”3 and defendants would also benefit, because this scheme “reliev[ed] the defendant from the obligation to make payments toward the plaintiff’s future health care and other non-economic expenses in the event of the plaintiff’s death.”4
CPLR Articles in Practice
It is often said that the road to hell is paved with good intentions, and CPLR articles 50-A and 50-B are no exception. While the Legislature intended CPLR articles 50-A and 50-B to benefit both plaintiffs and defendants, the end result has been confusion and discontent to all parties, including judges.
Under both articles, all past damages are still paid out in one lump sum. In medical malpractice actions, all damages for future loss of consortium and future loss of services are still paid in a lump sum, along with all damages in wrongful death actions and all damages for future pain and suffering up to $500,000.5 In non-medical malpractice tort actions, future damages up to $250,000 are still paid in a lump sum.6
Now for the hard part. The ambiguous language of articles 50-A and 50-B regarding the calculation of future damages and attorney fees has led courts to call out to the Legislature for an amendment, describing the process as “circuitous,”7 “vexing,”8 “every judge’s nightmare,”9 a “mind numbing process”10 and even “impossibl[e].”11 The reason for this is not just one but the multiple confounding aspects of the calculation process.
The defendant must purchase an annuity contract to provide for the payment of the remaining future damages.12 Future damages are to be paid in periodic installments over the period of time determined by the trier of fact in arriving at the itemized verdict, with the exception of damages for future pain and suffering, for which the time period cannot exceed eight years in a medical malpractice action and 10 years in general tort actions.13
For general tort actions, problems begin to arise immediately with the calculation of future damages, because article 50-B instructs that the present value of the annuity contract is to be “determined in accordance with generally accepted actuarial practices by applying the discount rate in effect at the time of the award to the full amount of the remaining future damages.”14
Because the “discount rate” is effectively not defined in article 50-B, the rate is often contested by the parties’ experts, leading to the first of many impediments to calculating future damages.15 This is no longer an issue in medical malpractice actions, with article 50-A having been amended in 2003 to define the discount rate as “the rate in effect for the ten-year United States Treasury Bond on the date of the verdict.”16 Although article 50-A was amended due to obvious defects and ambiguities, article 50-B remained untouched.
Another apparent defect in the calculation process arises in general tort actions with respect to damages for future pain and suffering and the annual compounding 4 percent interest.17 Even though the statute provides for an automatic 4 percent increase per year to the amount of the first year’s payment, the jury is still instructed to consider the effect of inflation on the damages that will accrue in the future and is permitted to calculate that into the verdict, which effectively allows the present value to be increased twice to account for inflation.18 This issue was corrected in medical malpractice actions by way of the 2003 amendments: While there is still a 4 percent compounding interest, juries are no longer required to return verdicts reflecting the total future value of the award.19 Again, article 50-B was not changed and provides for an automatic 4 percent per year.
Yet another defect, at least in the eyes of plaintiffs, with respect to article 50-B is the ambiguity surrounding the date on which annuity payments are to begin. Pursuant to the statute, payments are to begin after the court enters a judgment; however, delays frequently arise between the verdict and the entry of judgment, such as when judgments are appealed.20
Since annuity payments for non-economic damages cease on the death of the plaintiff, even when the plaintiff dies before the term of the award, plaintiffs obviously prefer that the payments commence immediately so that, effectively, they outlive the time period prescribed by the jury.21 While the language of the statute is unclear, courts have continually rejected defendants’ contention that annuity payments should not commence until the appeal is decided. The termination of awards on the plaintiff’s death is also seen to be a defect to plaintiffs since with a lump sum payment, any remaining money would presumably go to the plaintiffs’ estates and now, plaintiffs simply stop receiving awards upon their death.
The ambiguous language regarding the calculation of attorney fees in article 50-B matters should make one’s head spin. Payment of attorney fees related to both past and future damages are to be payable in a lump sum; attorney fees related to the future periodically paid damages are also payable on a lump sum, “based on the present value of the annuity contract purchased to provide payment of such future periodically paid damages pursuant to subdivision (e).”22
Here’s where things get tricky. Subdivision (e) states, “After making any adjustment, including for attorney’s fees, the court shall enter a judgment for the amount of the present value of an annuity contract that will provide for the remaining amounts of future damages.”23 It goes on to instruct that the calculation is to be made by applying the discount rate to “the full amount of the remaining future damages, as calculated pursuant to this subdivision.”24 So which came first? Subdivision (c) instructs attorney fees to be paid based on the present value of the annuity contract while subdivision (e) states that the annuity contract must be calculated after deducting attorney fees. This conundrum alone has led courts to describe article 50-b as “circuitous”25 and a “mind numbing process.”26
The courts were divided on which calculation to make first; some courts determined the present value of the attorney fees first and then subtracted that amount from the undiscounted value of future damages while others subtracted the present value of attorney fees from the present value of future damages.27 All the while, the Legislature stood by and offered no help in solving this puzzle.
The Court of Appeals finally stepped in, and in Rohring v. City of Niagara Falls, determined that the proper calculation was to determine the present value of future damages before calculating the attorney’s fees and then to reduce that amount by the present value of attorney fees.28 The court reasoned that to calculate attorney fees based on the undiscounted value of future damages would exceed the amount awarded by the jury, would overcompensate the plaintiff, and thus, would be inconsistent with the purposes of article 50-b.
As you might have guessed, this is no longer an issue in medical malpractice actions, as article 50-A was amended to clarify that attorney fees are to be deducted from the “present value of the remaining streams of payments” for future periodically paid damages.29
While the amendments to Article 50-A are not perfect, they did help to alleviate some of the pain involved in calculating large future damages awards in medical malpractice actions. And both the 50-A amendments and the Rohring decision have provided some guidance for calculating future damage awards in general tort actions. But we still can’t help but ask: Why? Article 50-B has been frustrating plaintiffs, defendants and judges alike for 28 long years. Our recommendation is that given all the confusion and complexities, it is time to do away with Article 50-A and 50-B altogether. Hopefully changes are on the horizon.
1. Peter J. Coll, Jr., and Richard A. Jacobsen, Periodic Payments of Future Damages Awards: An overview of CPLR Articles 50-a and 50-b, 7-1 Post Trial Practice and Procedures (2010).
2. Id.; Bryant v. N.Y. City Health & Hosps. Corp., 93 NY2d 592, 600 (1999)(quoting Governor’s Program Bill, Bill Jacket, 1985 N.Y. Laws ch. 294)
5. CPLR §5031.
6. CPLR §5041.
7. Bryant, supra, 93 NY2d at 600; Bermeo v. Atakent, 241 A.D.2d 235 (1998); Blakesley v. State, 186 Misc.2d 239, 241 (Ct. Cl. 2000).
11. Rohring v. City of Niagara Falls, 84 NY 2d 60, 67 (1994); Reed v. Harter Chair Corp., 196 A.D.2d 123 (3d Dept. 1994); Allison v. Erie County Indus. Dev. Agency, 16 Misc. 3d 445 (Sup. Ct., Erie County 2007).
12. CPLR §§5031 (g) and 5041(e).
13. CPLR §§5031(c); 5041 (e).
14. CPLR §5041(e).
15. Bermeo, supra, 241 A.D.2d at 235; Ursini v. Sussman, 143 Misc.2d 727 (Sup. Ct., New York County 1989).
16. CPLR §5031 (e).
18. Schultz v. Harrison Radiator Div. GMC, 90 NY2d 311 (1997).
19. CPLR §5031 (c); Coll and Jacobsen at 7-5.
20. Coll & Jacobsen at 7-26; Scannapieco v. City of New York, 298 A.D.2d 81, 82 (2d Dept. 2002).
21. Coll & Jacobsen at 7-5 (citing Thomas A. Moore & Matthew Gaier, Medical Malpractice, “The Revised CPLR Article 50-A,” NYLJ, Aug 5, 2003, p.1).
22. CPLR §5041 (c).
23. CPLR §5041 (e); Rohring, supra, 84 NY2d 60, 66.
25. Bryant, supra, 93 NY2d at 600; Bermeo v. Atakent, 241 A.D.2d 235 (1998); Blakesley v. State, 186 Misc.2d 239, 241 (Ct. Cl. 2000).
27. Rohring, supra, 84 NY2d at 66.
28. Id. at 68.
29. CPLR §5031(f) (3).