Penn. Court Settles Underinsured Motorist Coverage Dispute

The Pennsylvania Supreme Court has ruled that an insurer may not deny benefits to a police officer who was struck by an underinsured driver while on duty just because the officer received workers’ compensation for injuries suffered in the crash.

The decision, handed down this week, reverses a 2008 appeals court ruling that coverage providers may exclude insured parties in such circumstances, with the high court finding that those exclusions would violate public policy and free coverage insurers from having to pay most claims.

Frank Heller, a police officer with Sugarcreek Borough, had sought underinsured motorist benefits after he was severely injured in a crash on Oct. 31, 2002. Uninsured and underinsured motorist (UM/UIM) coverage is meant to protect Pennsylvania car insurance policyholders and insured drivers in other states who get into an accident caused by a driver with no coverage or liability limits that too low to pay for all injuries or damages.

Workers’ compensation had covered Heller’s medical bills and two-thirds of his salary, according to court documents, and the individual who caused the crash’s policy paid out $25,000, which was the limit on the policy. But Heller’s damages exceeded the coverage limits.

The borough’s UM/UIM insurance through the Pennsylvania League of Cities and Municipalities included coverage up to $100,000 per person or per accident.

The insurer denied the officer’s claim, however, citing a policy exclusion stating that UIM coverage does not apply to any “claim by anyone eligible for workers’ compensation benefits,” according to the court.

A trial court ruled that a repealed section of a state law aimed at limiting “spiraling” auto insurance costs prohibited insurers from denying UIM payouts to an employee because he or she had received workers’ compensation. Such an exclusion, the trial court found, violated public policy in part by preventing insurers from having to pay benefits on claims for which they received policy payments.

A divided Commonwealth Court overturned that decision, citing among other concerns its reluctance to become involved in disputes between insurers over workers’ compensation and UIM benefits.

The high court reversed the appellate panel’s decision on the grounds that any accident serious enough to qualify a borough employee for UIM benefits would obviously make them eligible for workers’ compensation. Because the only people who would be eligible for UIM benefits under the borough’s policy would be a prisoners injured while in transport, the court found that the exclusion would enable the insurer to collect premiums while seldom having to pay benefits.

“Thus, the exclusion renders the coverage illusory, and the insurer receives a windfall by charging a premium for the coverage,” Justice Orie Melvin wrote for the majority. “Since the workers’ compensation exclusion operates to render the instant UIM coverage illusory and runs counter to the intended compensatory scheme established by the General Assembly, we find it void as against public policy.”

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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