It’s a common occurrence: an employee is out on the road as a driver, passenger, or pedestrian as part of their job when they are hit by a car. It’s particularly common for municipal employees like police officers and for delivery drivers and highway workers because they are, of course, out on the road and in danger a lot more than the rest of us.
The next legal step is routine: the injured employee files a claim for workers’ compensation, which will cover some medical expenses and some fraction of their salary, and then files suit against the driver that hit them. The problem, though, is that the Pennsylvania minimum insurance coverage is a mere $15,000 per injured person, so workers’ compensation plus the tortfeasors’ insurance policy limits usually isn’t much. It’s often less than the simple out-of-pocket medical expenses and lost wages, not to mention any sort of pain and suffering or future health care.
That’s where things get complicated. Although Pennsylvania doesn’t require uninsured motorist or underinsured motorist coverage, every employer-sponsored plan I’ve seen includes it. In theory, then, the employee can claim their UM/UIM coverage as well once they’ve exhausted the tortfeasor policy.
And that’s where everyone hits a snag: because the insurance company providing the workers’ compensation is typically the exact same company providing the UM/UIM coverage, the insurers often put into a policy an exclusion that does not apply UM or UIM coverage to any claim also eligible for workers’ compensation benefits. Is that legal?
Let’s pause for an aside: Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), which replaced Pennsylvania’s prior No-Fault Act, has consumed our courts, particularly our Supreme Court, for a generation now. The Pennsylvania Supreme Court has decided dozens of MVFRL cases over the past twenty years. In my humble estimation, it is the single most-interpreted law in Pennsylvania, which makes sense given how we have about 350 car crashes a day, four of which, on average, result in a fatality.
Back on track, last week the Pennsylvania Supreme Court decided Heller v. Pennsylvania League of Cities, firmly answer the “is that legal?” question with “no”:
We granted review to determine whether it is a violation of public policy to exclude from underinsured motorist (“UIM”) coverage a claim by an individual eligible for workers’ compensation benefits. For the following reasons, we conclude that a workers’ compensation exclusion in an employer-sponsored insurance policy violates public policy and is, therefore, unenforceable.
The court went into a number of reasons why the exclusion was void, but the biggest reason was a simple practical review of the reality of employer-sponsored insurance coverage. If the insurance applied only when an individual was injured in the scope of their employment, yet wasn’t available when workers’ compensation applied, then when, exactly, could employees use the UIM coverage paid for by their employers?
The insurance company literally could not dream up a situation in which any of the employees could actually recover UIM coverage, rendering it illusory and thus void:
Despite its claim that the coverage is not illusory, Penn PRIME has not presented this Court with an instance under which coverage will attach such that it would be required to pay UIM benefits. Our own analysis fails to reveal a scenario where the coverage will meaningfully apply to the intended beneficiaries — the Borough’s employees. Under the facts of the case, the exclusion renders the coverage illusory. The Borough has been denied the benefit of the bargain, while Penn PRIME has received a windfall by collecting a premium for illusory coverage. To uphold the exclusion would thwart the purpose of the MVFRL by allowing an insurer to deny benefits for which their insured paid a premium. Thus, permitting the exclusion to stand provides a disincentive for insureds to pay premiums for coverage that is not statutorily required and relieves the insurer of its obligation to provide benefits for which the insured paid. While the Borough may have received a reduced premium in exchange for what Penn PRIME deems “limited” coverage, an insured cannot contract for illusory coverage.
It’s a victory for employees injured on the job in car accidents — particularly municipal employees and workers who spend a lot of time on the road — but there is another wrinkle left undecided: the extent to which the insurer, as workers’ compensation insurer, can impose a subrogation lien (for payments made on the employee’s behalf) on its own UM/UIM coverage. Employees might gain the right to UIM coverage just to watch it get eaten up by a lien imposed by the same insurance company’s workers’ compensation payments. One hand giveth and the other taketh away. (More on giveth and taketh.)
We’ll likely see another trip to the Supreme Court to decide that one. Until then, workers injured on-the-job and on-the-road hopefully have a new source of compensation available to them.