Hannigan v. Workers' Compensation Appeal Board

860 A.2d 632, 2004 Pa. Commw. LEXIS 779

• Court: Commonwealth Court of Pennsylvania
• Decided: November 1, 2004
• Status: Published

Opinions

OPINION BY

Judge LEADBETTER.

The issue presented for review is whether an employer is entitled to subrogate against uninsured motorist benefits that the claimant receives under a policy of motor vehicle insurance purchased by someone other than the claimant, the employer or the tortfeasor who caused the motor vehicle accident. The Workers’ Compensation Appeal Board (Board) concluded that employer was entitled to sub-rogate against the funds and reversed the order of the Workers’ Compensation Judge (WCJ). The Board’s order is consistent with both the analysis set forth in recent appellate case law, particularly City of Meadville v. Workers’ Compensation Appeal Board (Kightlinger), 810 A.2d 703 (Pa.Cmwlth.2002), alloc, denied, 578 Pa. 702, 852 A.2d 313 (2004), and Poole v. Workers’ Compensation Appeal Board (Warehouse Club, Inc.), 570 Pa. 495, 810 A.2d 1182 (2002), and the statutory scheme for coordination of benefits evident in the Workers’ Compensation Act (Act)¹ and Motor Vehicle Financial Responsibility Law (MVFRL).² Accordingly, we affirm the order of the Board.

Factually, the matter is not in dispute. Claimant worked as a mechanic for employer O’Brien Ultra Service Station. On November 9, 1995, claimant sustained work-related injuries when he was involved in a car accident while driving a customer’s car. The other motorist was not insured. Thereafter, claimant received total disability benefits pursuant to a notice of compensation payable. Claimant subsequently made a claim under the customer’s motor vehicle insurance policy and received $275,000 in uninsured motorist benefits. In November of 1999, employer filed a petition for modification, seeking to subrogate against claimant’s third-party recovery. Because both parties agreed to the above-referenced facts, no testimony was taken on the petition.

The WCJ concluded that since employer had not paid for the motor vehicle insurance and the insurance was intended to protect the owner of the car rather than employer, employer was not entitled to subrogate against the recovery. Accordingly, the WCJ denied employer’s modification petition. On appeal, the Board reversed. In doing so, the Board considered, among other things, the purposes served by subrogation, the 1993 amendments to the MVFRL,³ and this court’s decision in City of Meadville. The instant appeal followed.

Claimant argues on appeal that employer is not entitled to subrogate against the uninsured motorist benefits that he received under the customer’s motor vehicle insurance policy because employer did not pay for or procure the insurance policy under which the recovery was made and that insurance policy was not intended to benefit the third-party tortfeasor but its insured, the owner of the car claimant was driving at the time of the accident. We disagree with claimant’s characterization of uninsured motorist coverage and with his assertion that the fact that someone other than employer paid for the coverage is determinative of employer’s right of sub-rogation.

Section 319 of the Act, 77 P.S. § 671, provides in relevant part:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this [Act] by the employer....

In City of Meadville, this court reiterated the purposes served by the employer’s statutory right of subrogation:

[T]he rationale for the right of subrogation is threefold: to prevent double recovery for the same injury by the claimant, to insure that the employer is not compelled to make compensation payments made necessary by the negligence of a third party, and to prevent a third party from escaping liability for his negligence .... “[S]ubrogation is just, because the party who caused the injury bears the full burden; the employee is made ‘whole,’ but does not recover more than what he requires to be made whole; and the employer, innocent of negligence, in the end pays nothing.” Thus where a third-party’s negligent conduct causes injury to an employee actually engaged in the business of his employer, there is a clear, justifiable right to sub-rogation under Section 319 of the Act.

810 A.2d at 704-05 [quoting Brubacher Excavating, Inc. v. Workers’ Compensation Appeal Board (Bridges), 774 A2d 1274, 1277 (Pa.Cmwlth.2001), aff'd, 575 Pa. 168, 835 A.2d 1273 (2003)]. Accord Poole. In order to assert its right of subrogation, the employer must demonstrate that it was compelled to make payments under the Act due to the negligence of a third party and that the fund from which it seeks subrogation was for the same compensable injury for which the employer was liable under the Act. Poole, 570 Pa. at 499, 810 A.2d at 1184.

Initially, it is important to note that Section 1731(b) of the MVFRL, 75 Pa.C.S. § 1731(b), defines “uninsured motorist coverage” as “protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from owners or operators of uninsured motor vehicles. ...” (Emphasis added). Thus, by definition, the recovery of uninsured motorist benefits is premised on the liability or negligence of another driver; otherwise, there would be no legal entitlement to the recovery of damages. As our Supreme Court noted in Gardner v. Erie Insurance Co., 555 Pa. 59, 70, 722 A.2d 1041, 1046 (1999), “recovery [of uninsured motorist benefits] derives from the contractual commitment of the insurer to provide coverage for injury resulting from the fault of the uninsured motorist, and benefits may be payable to the injured occupant by virtue of his status as a third-party beneficiary.” With respect to uninsured motorist coverage, the American Jurisprudence encyclopedia states that it “is not intended to serve as a substitute for comprehensive personal liability insurance, but rather to provide protection for the innocent party by making the insurance carrier stand as the insurer of the uninsured motorist .... ” 7 Am Jur 2d Automobile Insurance § 86 (footnotes omitted and emphasis supplied). Accord Boris v. Liberiy Mut. Ins. Co., 356 Pa.Super. 532, 515 A.2d 21 (1986).⁴

In City of Meadville, this court addressed the issue of whether the employer’s workers’ compensation carrier was entitled to subrogate against the unin-suredAmderinsured motor vehicle benefits recovered by the injured employee under the employer’s motor vehicle insurance policy. The employee received the funds because the third-party tortfeasor was either uninsured or underinsured at the time of the accident. In concluding that the employer was entitled to subrogate against the funds, this court relied in part on Warner v. Continental/CNA Insurance Cos., 455 Pa.Super. 295, 688 A.2d 177 (1996) and Gardner. Although we discussed these two cases in City of Mead-ville, it is appropriate to review them again here because they demonstrate that the coordination of benefits scheme currently set forth in the MVFRL supports our conclusion today that subrogation is proper.

In Warner, the Superior Court addressed the issue of whether the exclusivity provision of the Act⁵ precluded an employee injured in a work-related automobile accident from recovering underin-sured benefits⁶ from the employer’s motor vehicle insurance policy. In resolving this issue, the Superior Court examined the 1993 amendments to the MVFRL (hereafter referred to as Act 44). Prior to Act 44, the statutory scheme set forth in the MVFRL precluded a claimant from recovering in a third-party tort action amounts that he had received under the Workers’ Compensation Act, and the employer had no right of subrogation against the claimant’s tort recovery. See City of Meadville; former Sections 1720 and 1722 of the MVFRL, 75 Pa.C.S. §§ 1720 and 1722. Specifically, former Section 1720 of the MVFRL provided: “In actions arising out of the maintenance or use of a motor vehicle, there shall be no right of subrogation or reimbursement from a claimant’s tort recovery with respect to workers’ compensation benefits .... ” In tandem with former Section 1720, former Section 1722 provided:

In any action for damages against a tortfeasor, or any uninsured or underin-sured 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 sub-chapter, or workers’ compensation....

Thus, as we noted in City of Meadville, under the former statutory scheme, a claimant could not recover in a tort action against a third party amounts paid under workers’ compensation and the employer had no right of subrogation against a claimant’s subsequent tort recovery. 810 A.2d at 705 n. 6. We further noted that, “ ‘The effect, and obvious legislative intent, was to mandate that the ultimate burden for payment of compensation benefits remain with Workers’ Compensation insurance and not be passed on to the automobile insurance [carrier] (and the premiums by which auto insurance is funded) [footnote omitted].’” Id. [quoting Updike v. Workers’ Compensation Appeal Board (Yeager Supply Inc.), 740 A.2d 1193, 1195 (Pa.Cmwlth.1999)].

With Act 44, however, the legislature concurrently repealed Sections 1720 and 1722 as they relate to workers’ compensation. Consequently, in an action involving an automobile post-Act 44, an employee’s third-party recovery is not reduced by the amount of workers’ compensation benefits received, and the workers’ compensation carrier has the right to subrogate against any benefits the claimant receives in connection with the third-party action. City of Meadville, 810 A.2d at 705 n. 6. See also Gardner, 555 Pa. at 67-68, 722 A.2d at 1045; Warner, 688 A.2d at 183. Significantly, in making this double change, the General Assembly preserved a scheme which allowed claimants to be made whole but prevented their double recoveries, while shifting the ultimate burden from innocent employers and their carriers to responsible tortfeasors and those insurers who pay in their stead.

Act 44 also repealed Sections 1735 and 1737 of the MVFRL, which had specifically allowed employees to assert claims against their employers’ un-and underinsured motorist coverage without reduction for compensation benefits paid.⁷ After reviewing the Act 44 amendments, the Superior Court in Warner concluded that an employee injured in a work-related car accident could still recover uninsured motorist benefits under his employer’s policy and such recovery was not barred by Section 303 (exclusivity provision) of the Act. Notably, the court opined:

[W]e are unable to conclude that the legislature intended the provisions of Section 303 of the [Act to] preclude recovery of underinsured motorist benefits by an injured employee under a policy issued to his or her employer, where those amendments to the MVFRL have made the purchase of underinsured and uninsured motorist benefits optional and have granted the workmen’s compensation carrier the right of subrogation.

Nor is the purpose of the [Act] furthered by precluding recovery of uninsured or underinsured motorist benefits by an employee where, pursuant to the 1993 amendments to the MVFRL, the workmen’s compensation earner has the right to seek subrogation for all sums paid to or on behalf of the injured claimant. Allowing the injured employee to recover underinsured or uninsured motorist benefits from his or her employer’s motor vehicle insurer will create a fund against which the employer’s workmen’s compensation carrier can exert its subrogation lien.

Warner, 688 A.2d at 183, 185 (emphasis supplied).

Shortly thereafter, in Gardner, our Supreme Court addressed whether the Act’s protection of employees from lawsuits by co-employees for work-related injuries,⁸ precluded an injured employee from collecting uninsured motorist benefits under a co-employee’s insurance policy following an accident with an uninsured driver. There, our Supreme Court examined the Act 44 amendments and concluded that they fundamentally altered the legislative scheme for coordinating benefits available to employees injured in car accidents.⁹ The court found the following statement by the Third Circuit particularly persuasive:

According to the Warner court, the repeal of Sections 1735 and 1720 effected a single plan. Under the post-repeal law, the injured employee is permitted to recover both workers’ compensation and uninsured motorist benefits, including a possible recovery from each of these two sources for the same injury. The collection by the employee of the uninsured motorist benefits, however, merely creates a fund against which the workers’ compensation carrier can exert a subrogation hen for amounts it paid the employee for the already-recompensed injury. Understood in this broader context, the repeal of Section 1735 — like the repeal of Section 1737— did not affect the ability of employees to recover both workers’ compensation and uninsured motorist benefits. Indeed, the [Act 44 amendments] permitted the injured employee to recover more from these sources, although the workers’ compensation carrier may ultimately be the beneficiary — by the use of its sub-rogation lien — of any double recovery.

555 Pa. at 69, 722 A.2d at 1045-46 (emphasis added) [quoting Travelers Indem. Co. of Illinois v. DiBartolo, 131 F.3d 343, 348-49 (3d Cir.1997)]. Accordingly, after examining the statutory scheme in place post-Act 44, the court agreed that an employee could recover both workers’ compensation and uninsured motorist benefits for the same injury. The court also considered, however, whether an employee’s recovery under a co-employee’s uninsured motorist coverage constituted a recovery against the co-employee in violation of Section 205 of the Act. In concluding that such a recovery was not prohibited, the court observed as follows:

[Section 1731 of the MVFRL explains] that [uninsured motorist coverage] is available for persons who are “legally entitled to recover” for injuries arising out of the maintenance or use of a motor vehicle.... Indeed, consistent with the standard form for such insurance ... the operative terms of [the co-employee’s] policy with [the co-employee’s motor vehicle insurance carrier] incorporate this “legally entitled to recover” concept in favor of an injured occupant. Thus, recovery derives from the contractual commitment of the insurer to provide coverage for injury resulting from the fault of the uninsured motorist, and benefits may be payable to the injured occupant by virtue of his status as a third-party beneficiary.... Such contractual recovery, where premised upon wrongful third-party conduct, is not against the co-employee, nor does it proceed on the basis of any actual or potential legal liability on the part of the co-employee.

555 Pa. at 70-71, 722 A.2d at 1046 (citations omitted). Therefore, the court concluded that an employee injured in a work-related automobile accident could recover under a co-employee’s motor vehicle insurance policy.

Subsequently, in City of Meadville, the issue of the employer’s right to subrogate against an uninsured or underinsured motorist recovery was before the court. We examined the Act 44 amendments to the MVFRL, the purposes served by subrógation and the opinions in Warner and Gardner, and held that they supported the conclusion that the employer was entitled to subrogate against its employee’s recovery under the employer’s motor vehicle policy.¹⁰ Importantly, our decision did not hinge on the fact that the employer paid the premiums for the policy under which benefits were paid to the claimant; nor did our decision hinge on whom the uninsured/underinsured coverage was intended to benefit. Rather, our decision rested on the following rationale:

[T]he nature of uninsured and underin-sured benefits as well as [the claimant’s] settlement itself are premised on the fault of a third party; if the third party had been insured or had sufficient insurance coverage, then it would have been unnecessary for claimant to seek benefits under employer’s policy. Indeed, if the third party had been adequately insured and claimant had reached a settlement with him/her, there is no question that [employer’s workers’ compensation carrier] could assert its subrogation lien against those funds. Here, employer’s auto insurer is essentially paying damages resulting from the fault of a third party. It would be illogical to allow a claimant who is injured by the actions of an uninsured/underinsured third party and recovers uninsured/underinsured benefits under employer’s automobile insurance policy to be in a better position than the claimant who recovers directly from the third-party tortfeasor.

810 A.2d at 707.

Thus, the linchpins of our conclusion that the employer was entitled to assert its Section 319 right of subrogation were that such a result was contemplated by the statutory scheme in place and that the funds received from the motor vehicle carrier represented the damages the third-party tortfeasor would have paid had he been adequately insured. We conclude that the language of Section 319, which provides that “the employer shall be sub-rogated to the right of the employe ... against such third party” must be (and has been) construed by our appellate courts to include both direct recoveries from third-party tortfeasors as well as recoveries paid on behalf of or for the liability of that third party. Such a construction serves the purposes underlying Section 819. In addition to this court’s decision in City of Mead-ville, our Supreme Court’s recent decision in Poole further demonstrates this construction of Section 319.

In Poole, the claimant received workers’ compensation benefits following a slip and fall on ice. The claimant sought to pursue a third-party action against the owner of the property where he fell, but his attorney filed suit against the wrong party. As a result of counsel’s error, Poole’s third-party complaint was dismissed and the statute of limitations on his tort action ran. Poole filed a legal malpractice action against his attorney, which was resolved with a settlement. Poole’s employer then sought to subrogate against the settlement funds. While the WCJ and Board concluded that subrogation was appropriate, we disagreed. Poole v. Workers’ Compensation Appeal Board (Warehouse Club, Inc.), 770 A.2d 385 (Pa.Cmwlth.2001), rev’d, 570 Pa. 495, 810 A.2d 1182 (2002). On appeal, our Supreme Court addressed whether the employer’s reliance on the claimant’s legal malpractice complaint was sufficient to sustain the employer’s burden of proof that it was compelled to pay benefits by reason of the negligence of a third party and that the fund from which it sought subrogation was for the same com-pensable injury for which the employer had made payments under the Act. In concluding that subrogation was proper, the court noted that a legal malpractice action requires the plaintiff to prove that he had a viable cause of action against the party he sought to sue in the underlying case. The court stated in pertinent part:

[T]he employee must demonstrate not merely an injury as a result of the malfeasance of his previous counsel, but also the malfeasance of the original tortfea-sor which resulted in the underlying injury. Thus, an employer may rely upon the employee’s legal malpractice action to demonstrate that “the compensable injury is caused ... by the third party.” Furthermore, we find that this result is mandated by the underlying rationale of subrogation in the context of the Workers’ Compensation Act. The employee is made whole for his injury while not receiving a double benefit. The employer is not compelled to make compensation payments for the negligence of a third party. Finally, while the underlying tortfeasor may have escaped liability due to the statute of limitations and the actions of employee’s previous counsel, the legal malpractice action places this liability on the proper party.

570 Pa. at 500, 810 A.2d at 1184-85.

Clearly, in concluding that the employer was entitled to assert its subrogation lien against the claimant’s legal malpractice settlement, funds that were not derived directly from the third-party tortfeasor but represented that for which the tortfeasor was otherwise liable, our Supreme Court demonstrated its understanding that Section 319 does not limit subrogation to those funds received directly from the third-party tortfeasor. Rather, the Supreme Court’s decision demonstrates that subro-gation is appropriate where the employer has made payments under the Act because of the negligence of a third party, and the fund against which subrogation is sought is based upon the tortfeasor’s liability.

Applying these principles, we conclude that employer is entitled to subrogate against the uninsured motorist benefits claimant received under the customer’s motor vehicle insurance policy.¹¹ Accordingly, the order of the Board is affirmed.

ORDER

AND NOW, this 1st day of November, 2004, the order of the Workers’ Compensation Appeal Board in the above captioned matter is hereby AFFIRMED.

1 . Act of June 2, 1915, P.L. 736, as amended, 77P.S. §§ 1-1041.4; 2501-2626.

2 . 75 Pa.C.S. §§ 1701-1799.7.

3 . Act of July 2, 1993, P.L. 190 (often referred to as Act 44).

4 . In Boris, the Superior Court noted:

[The exclusivity provision of the Act] does not mean that [the claimant] has given up the right to seek redress from an unrelated third party. Consequently, he must be allowed to pursue that same course of action against the carrier of uninsured motorist benefits; despite the fact that the carrier does not represent the interests of the uninsured motorist, it does stand in his shoes as concerns suits by the injured party.

515 A.2d at 25.

5 . Section 303 of the Act, as amended, 77 P.S. § 481, entitled, "Exclusiveness of remedy; actions by and against third-party; contract indemnifying third-party," provides in pertinent part:

(a) The liability of an employer under this act shall be exclusive and in place of any and all other liability to such employes, his legal representative, husband or wife, parents, dependents, next of kin or anyone otherwise entitled to damages in any action at law or otherwise on account of any injury or death as defined in [this act] [footnotes omitted].

6 .Section 1731 of the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. § 1731, defines ‘‘underinsured motorist coverage" as "protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from owners or operators of underinsured motor vehicles. ...” (Emphasis added).

7 . Former Section 1735 provided: "The coverages required by this subchapter [subchapter C; uninsured and underinsured motorist coverage] shall not be made subject to an exclusion or reduction in amount because of any workers' compensation benefits payable as a result of the same injury.” Former Section 1737 provided, in turn:

Notwithstanding anything contained in the act ... known as the The Pennsylvania Workmen’s Compensation Act, no employee who is otherwise eligible shall be precluded from recovery of uninsured or underin-sured motorist benefits from an employer’s motor vehicle policy under this chapter or the [Uninsured Motorist Act].

8 . Section 205 of the Act, as amended, 77 P.S. § 72, entitled, "Liability of fellow employe” provides that:

If disability or death is compensable under this act, a person shall not be liable to anyone at common law or otherwise on account of such disability or death for any act or omission occurring while such person was in the same employ as the person disabled or killed, except for intentional wrongdoing.

9 . The General Assembly’s intent to coordinate benefits and prevent duplicative payments to an injured claimant is also evident in the 1996 amendment to Section 204 of the Act, 77 P.S. §71, which allows an employer to credit against the amount of workers' compensation benefits payable, inter alia, severance benefits paid by the employer as well as benefits from a pension plan to the extent funded by the employer.

10 . See also Schwaab v. Workers’ Compensation Appeal Board. (Schmidt Baking Co., Inc.), 832 A.2d 1164 (2003).

11 . American Red Cross v. Workers' Compensation Appeal Board (Romano), 745 A.2d 78 (Pa.Cmwlth.2000), aff'd, 564 Pa. 192, 766 A.2d 328 (2001) does not command a different result. There, we held that, "proceeds obtained by a claimant through his own insurance policy, be it uninsured or underin-sured provisions of that policy, the premiums for which are paid exclusively by the claimant, are fundamentally different than proceeds obtained from a third-party and, therefore, are not subject to subrogation.” Id. at 81 (emphasis in the original). We specifically distinguished Warner and Gardner because the benefits there were paid by a third-party's insurance carrier, not by the claimant’s own policy. We then stated, "Any claimant, like anyone else, is free to insure himself or herself against any contingency for which he or she may obtain insurance, and we read nothing in the Act that evidences an intent on the part of the Generad Assembly to allow an employer to take advantage of such a claimant’s foresight.” Id. In other words, where a claimant has purchased his own insurance which pays for his injuries because of the premiums he has paid, he is entitled to the double recovery ordinarily barred by Section 319. The same cannot be said, however, of a claimant who recovers under a policy of insurance purchased by some third-party, such as a co-worker or, as here, a customer. There is simply no basis to treat the latter claimant different from a claimant who recovers from the tortfeasor or the tortfeasor’s insurer.