Date: June 8, 2007

In Tannenbaum v. Nationwide Insurance Company, 919 A.2d. 267 (Pa.Super. 2007), the Pennsylvania Superior Court ruled that an insurer is not entitled to a credit for private disability benefits received by an insured against an award of underinsured (UIM) motorist benefits to the insured.  The Court held that benefits derived from self-paid disability coverage do not duplicate benefits payable under a UIM insurance policy.

Prior to the arbitration hearing in Tannenbaum, the insurance company submitted a motion in limine seeking to preclude the Claimant from introducing evidence relating to amounts paid or payable from two personal disability policies subscribed to Claimant, and one group policy supplied by his employer under an earned employee incentive program, all three of which were issued by the same company, UNUM. The motion was granted, and after a hearing the arbitrators credited and/or set off $984,432.52 against their award of $1,875,000.00, leaving a net amount of $890,567.48.  The Claimant’s petition to vacate the arbitrators’ decision was granted after a hearing, and the insurance company appealed to the Pennsylvania Superior Court.

The motion in limine was based on the theory that because Claimant had already received disability benefits in the form of payments from UNUM, receipt of UIM payments without set-off would constitute duplicate recovery, or “double dipping,” a practice the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S.A. § 1722, was specifically designed to prevent. That section provides:

§ 1722. Preclusion of recovering required benefits

In any action for damages against a tortfeasor, or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth in this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719 (relating to coordination of benefits) shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719.

On appeal the insurance company assigned error to the trial court’s determinations that: 1) that § 1722 does not prevent Claimant’s receipt of benefits from both his UIM coverage and his disability policies; and 2) that Claimant should be able to plead and prove the amount of benefits paid or payable from his personal policies where a dispute still existed as to whether the group policy was paid for by Claimant or his employer.

The insurance company argued essentially that § 1722 must be construed to regard any benefit payments other than those received pursuant to UIM coverage as, by definition, duplicative. In so arguing, the insurer confused double recovery, which the Act does not permit, with recovery of excess benefits, for which the Act makes provision. See 75 Pa.C.S.A. § 1719(a).FN2

FN2. 75 Pa.C.S.A. § 1719. Coordination of benefits

(a) General rule.-Except for workers’ compensation, a policy of insurance issued or delivered pursuant to this subchapter shall be primary. Any program, group contract or other arrangement for payment of benefits such as described in section 1711 (relating to required benefits) 1712(1) and (2) (relating to availability of benefits) or 1715 (relating to availability of adequate limits) shall be construed to contain a provision that all benefits provided therein shall be in excess of and not in duplication of any valid and collectible first party benefits provided in section 1711, 1712 or 1715 or workers’ compensation.

The crux of the insurer’s argument was that “ § 1722 does not exempt plans because of the source of the payment and to adopt such an approach would defeat the very purpose of the MVFRL.” (Appellant’s Brief at 24). Specifically, the insurer insisted that Claimant having himself paid for his personal disability policies does not entitle him to benefits under both that coverage and his UIM policy, since such recovery would undermine the intent of the statute to prevent duplicate benefits. The Court noted however that it was not persuaded, as a review of case authority in the area revealed a clear intent to acknowledge the legitimacy of excess benefits.FN3

FN3. The insurer’s challenge to the order was based almost entirely on Austin v. Dionne, 909 F.Supp. 271 (E.D.Pa.1995), which, as a Federal District Court decision, is both non-binding on this Court, and prior in time to the controlling authorities discussed herein.

The Court noted that preliminarily the disability policies at issue on their face stated, as § 1719(a) requires, that they were in excess of first party benefits available under the MVFRL. Excess clauses have long been understood to “provide protection to the insured in addition to other coverage which might be available to him.” Connecticut Indemnity Company v. Cordasco, 369 Pa.Super. 439, 535 A.2d 631, 633 (1985) (citation omitted). Our Supreme Court in Panichelli v. Liberty Mutual Insurance Group, 543 Pa. 114, 669 A.2d 930, 932 (1996), addressed the question of whether sick pay and social security benefits were deductible in calculating actual loss of income under the MVFRL. The Court made clear that benefits for which an employee has paid, either “in the form of lower wages for the sick leave benefits and in the form of payroll deductions for the social security benefits,” id., are not duplicative, since “the reference in § 1719(a) to § 1712(2) FN4 shows an intent on the part of the Legislature to allow excess recovery of wage benefits payable under any program, group contract, or other arrangement.” Id. (emphasis added).FN4. § 1712. Availability of benefits

An insurer issuing or delivering liability insurance policies covering any motor vehicle of the type required to be registered under this title … shall make available for purchase first party benefits with respect to injury arising out of the maintenance or use of a motor vehicle as follows:

(2) Income loss benefit.-Includes the following:

(i) Eighty percent of actual loss of gross income.

(ii) Reasonable expenses actually incurred for hiring a substitute to perform self-employment services thereby mitigating loss of gross income or for hiring special help thereby enabling a person to work and mitigate loss of gross income.

Similarly, in Browne v. Nationwide Mutual Insurance Company, 449 Pa.Super. 661, 674 A.2d 1127 (1996), appeal denied, 545 Pa. 674, 682 A.2d 306 (1996), the Supreme Court found that payment under the MVFRL was not subject to offset for social security disability benefits because the source of the latter is the claimant himself. Id. at 1129. The Court noted as critical appellant’s having paid for the coverage out of his own pocket, and found that fact rendered the benefits recovered in excess of his UIM benefits, not in duplication.

In Carroll v. Kephart, 717 A.2d 554 (Pa.Super.1998), the Supreme Court again concluded, after reviewing Panichelli and Browne, that sick pay, because of which the Claimant received lower wages, was not a reprise of wage loss benefits under the MVFRL: “benefits [] which a plaintiff has *271 paid for or earned through his employment are not within the purview of § 1722 and the receipt of those benefits do not constitute a double recovery.” Id. at 558.

This view is further developed in Ricks v. Nationwide Insurance Company, 879 A.2d 796 (Pa.Super.2005), appeal denied, 587 Pa. 698, 897 A.2d 459 (2006). There the question involved whether the claimant’s recovery of uninsured motorist (UM) benefits under his own policy was duplicative of benefits received under his employer’s workers’ compensation coverage. The Court found that it was not, as the statute prohibits subrogation by a workers’ compensation carrier against a claimant’s personal UM insurance policy. Id. at 801 n. 8.

In Standish v. American Manufacturers Mutual Insurance Company, 698 A.2d 599 (Pa.Super.1997), the Court considered the situation of a worker injured in the course of his employment while driving his personal vehicle. Because the automobile insurance premiums had been paid exclusively by the Claimant, the Court found that his receipt of benefits pursuant to his own automobile policy was not duplicative of workers compensation benefits, and therefore not subject to subrogation. Id. at 601.

All of these cases involved types of personally paid insurance different than that of the Claimant in Tannenbaum, and the insurer insisted that the holdings in each were limited to the specific type of excess insurance considered. However, the Court was not persuaded, as the overarching principle remains constant: where the personal policies resorted to are both separate from UIM, or UM, coverage, and paid for exclusively by the claimant either directly, or through payroll deductions which result in lower wages, payments received from these coverages do not duplicate benefits under the MVFRL as they are fundamentally different from those benefits.

The insurer also contended that the trial court erred in finding that Claimant should be allowed to plead and prove the amounts paid or payable from his disability policies. The error lies, the insurer insisted, because the information on these matters was not submitted to the arbitration panel which therefore did not resolve the question of whether the disability policy Claimant received through his employment was paid for by him or his employer. Again, the Court was not convinced.  The absent information was not provided to the arbitrators because they had, in granting insurer’s motion in limine, refused to receive it. As already noted, in so doing they erred. Given this circumstance, the argument that the trial court erred in ordering that Claimant “is permitted” to produce this evidence is one most charitably described as circular.

In Ricks, supra, a panel of arbitrators was found by the Pennsylvania Superior Court to have prohibited the appellant improperly from “pleading proving and recovering” from his UM carrier the amount of worker’s compensation he had received, an amount deducted from his UM coverage. We determined that because the two payment streams were not duplicative under § 1722, “the arbitrators ‘had refused to hear evidence material to the controversy,\’ such that their award should be vacated. 42 Pa.C.S.A. § 7314(a)(iv).” Id. at 801. The Court noted the arbitrators in this case made the same mistake.

If you have any questions about UM or UIM coverage, or a UM or UIM claim, please contact DLP for a free consultation.

John P. Finnerty, Esquire

Joe Price
Attorney Joe Price is a seasoned Trial Lawyer serving Northeast, Central and Southeast Pennsylvania for the past forty (40) years. He has handled serious personal injury cases in courts throughout the Federal system including New Jersey and New York. Attorney Price is A.V. Rated by Martindale Hubble. He is Board Certified in Civil Practice by the National Board of Trial Advocacy since 1996.