Justices Find UIM Benefits Offset by All Recovered Damages
The Pennsylvania Supreme Court has ruled that recovery under an underinsured motorist insurance policy is offset by the amount of all damages paid to satisfy an underlying judgment.
In AAA Mid-Atlantic Insurance v. Ryan, the justices unanimously reversed a state Superior Court ruling that held that an insured who was injured by an underinsured motorist was entitled to UIM benefits on top of the damages recovered from all defendants pursuant to an arbitration award.
The Superior Court had found that insureds Mary Ryan and her husband, Edward J. Ryan, were entitled to UIM benefits following an accident between Mary Ryan and underinsured driver Charlotte Eckel, even though the Ryans had already recovered the full amount of damages awarded to them from both Eckel and the city of Philadelphia.
The court found that the "limit of liability" clause in the Ryans' UIM policy barring duplicate recoveries and requiring that UIM benefits be offset by the total amount of damages recovered from all tortfeasors went against the Motor Vehicle Financial Responsibility Law's public policy goal of protecting people injured by underinsured drivers.
But in a 13-page opinion issued Jan. 21, the high court, led by Justice Debra Todd, said it could "find no basis for that court's conclusion that the provisions of the policy conflict with the public policy embodied in the MVFRL by 'frustrat[ing] the MVFRL's interest' in protecting those injured by a tortfeasor who lacks adequate coverage."
"The Ryans were fully compensated for their injuries and received the entire amount of damages to which the arbitration panel held they were entitled from the city and Eckel," Todd said.
Todd was joined by Chief Justice Ronald D. Castille and Justices Thomas G. Saylor, Max Baer, J. Michael Eakin, Seamus P. McCaffery and Correale F. Stevens.
Following the motor vehicle accident in AAA, according to Todd, the Ryans filed separate suits in the Montgomery County Court of Common Pleas—one against Eckel and the other against the city of Philadelphia and the Pennsylvania Department of Transportation, alleging the highway was defectively designed, according to Todd.
The claim against PennDOT was dismissed by stipulation and the remaining claims against Eckel and the city were transferred to binding arbitration, Todd said.
Prior to arbitration, the Ryans settled with Eckel for the $25,000 limit of Eckel's motor vehicle liability insurance policy, according to Todd.
Later, following an arbitration hearing with the city as the only remaining defendant, the arbitrator found Eckel 50 percent negligent, Mary Ryan 35 percent negligent and the city 15 percent negligent, Todd said.
The arbitrator awarded the Ryans $500,000 in damages, less $175,000 for Mary Ryan's comparative negligence, leaving a net award of $325,000, according to Todd.
Under the doctrine of joint and several liability, the city paid the Ryans $300,000 and Eckel's insurer paid the remaining $25,000, Todd said.
While their suits against Eckel and the city were still pending, according to Todd, the Ryans filed a UIM claim with AAA, their motor vehicle insurer.
AAA denied the claim, however, citing the limit of liability clause in its policy, and the matter proceeded to arbitration, Todd said.
A three-member arbitration panel found that while the Ryans' UIM recovery must be offset by the damages recovered from Eckel, the Ryans were entitled to recover from AAA the same amount of damages already paid by the city, according to Todd.
Following a second arbitration hearing, Todd said, the panel concluded that while its decision would allow the Ryans to make a double recovery, such a result was required under the Superior Court's 1996 ruling in Allwein v. Donegal Mutual Insurance, which barred an insurer from offsetting the amount it owed its insured by the amount the insured received from the tortfeasor's insurer.
The arbitration panel found that AAA was responsible "'up to its policy limits for all amounts for which the third-party tortfeasors were underinsured, disregarding any payments made by the city'" to the Ryans, according to Todd.
AAA filed a petition to vacate the arbitration award in the Montgomery County trial court and Montgomery County Court of Common Pleas Judge Wendy Demchick-Alloy reversed the arbitration panel's decision, holding that AAA was entitled to offset the amount it owed to the Ryans by the amount of damages the Ryans had already recovered from both Eckel and the city, Todd said.
The Superior Court, on a 2-1 vote, reversed that holding on appeal, however, saying that the limit of liability clause in AAA's policy conflicted with the MVFRL's public policy goals by allowing insurers to reduce the amount of benefits they owe by "'any sum paid, regardless of the source,'" Todd said. The Superior Court acknowledged that its ruling would allow insureds to make double recoveries but found that result to be the "'lesser of two evils,'" according to Todd.
But Senior Judge Eugene B. Strassburger III dissented, arguing that double recoveries are forbidden by state law and that the Ryans were not entitled to UIM benefits because they had already been fully compensated for Mary Ryan's injuries.
Todd agreed with Strassburger's dissent, saying case law has held that the purpose of UIM coverage is to protect innocent victims from underinsured motorists who cannot fully compensate them for their injuries.
"As the Ryans were fully compensated for Mary Ryan's injuries, the purpose of the MVFRL is not furthered by allowing the Ryans to recover additional damages from AAA," Todd said, adding that there is a "longstanding prohibition in this commonwealth against double recoveries for a single injury."
Counsel for AAA, Andrew L. Riemenschneider of Moore & Riemenschneider in Abington, Pa., said he and his client were "really pleased" with the ruling.
Counsel for the Ryans, Gregory B. Heller of Young Ricchiuti Caldwell & Heller in Philadelphia, could not be reached for comment.
(Copies of the 13-page opinion in AAA Mid-Atlantic Insurance v. Ryan, PICS No. 14-0078, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •