Travelers Companies v. Liberty Mutual Insurance Co.
Annotate this Case
TRAVELERS_COS_V_LIBERTY_MUTUAL_INS.94-579; 164 Vt 368; 670 A.2d 827
[Filed 09-Nov-1995]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
No. 94-579
The Travelers Companies Supreme Court
On Appeal from
v.
Lamoille Superior Court
Liberty Mutual Insurance Company, June Term, 1995
Gary Cole, d/b/a Cole Turf Company
and Gary Cole, Individually
Alan W. Cook, J.
John J. Boylan, III, of Boylan & Bowen, Springfield, for plaintiff-
appellant
Mark H. Kolter of Darby Laundon Stearns & Thorndike, Stowe, for
defendant-appellee
PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.
ALLEN, C.J. Plaintiff workers' compensation insurer sought a
declaratory judgment establishing its right to reimbursement for
compensation benefits paid to defendant Gary Cole after he received
underinsured motorist benefits from his employer's liability carrier. The
Lamoille Superior Court granted Cole's motion for summary judgment. We
reverse.
Gary Cole was seriously injured in a motor vehicle collision in
Morrisville while in the course of his employment with the Cole Turf
Company, his own sod farming business. The accident was caused solely by
the negligence of an underinsured motorist. Because Cole's injuries arose
out of and in the course of his employment, plaintiff, which provided
workers' compensation insurance for Cole Turf Company, paid various
workers' compensation benefits to and on behalf of Cole.
At the time of the accident, Cole was also covered by a personal
automobile insurance policy he had purchased from Agway Insurance Company,
which had $250,000 of underinsured motorist (UIM) coverage. Cole's
business had an automobile policy issued by Liberty Mutual
Insurance Company, which provided UIM coverage of $500,000. The
tortfeasor's automobile insurance policy provided $100,000 of liability
coverage. Stacking the two underinsured motorist policies provided total
available UIM coverage of $750,000, leaving the amount of potential
underinsurance liability in this case at $650,000.
Plaintiff consented to Cole's settlement with tortfeasor's carrier for
its $100,000 policy limit and was reimbursed $50,000 for workers'
compensation benefits paid pursuant to an agreement between plaintiff and
Cole. In that agreement, plaintiff reserved the right to claim
reimbursement for further compensation benefits paid out of any recovery
Cole might obtain from his employer's UIM coverage.
Plaintiff's workers' compensation payments to Cole exceeded the
initial $50,000 from the tortfeasor's policy by $126,500. Cole received
$147,000 of UIM benefits from his personal UIM policy with Agway and
$160,000 from his employer's policy with Liberty Mutual, resulting in total
liability policy and UIM proceeds of $357,000. Plaintiff seeks
reimbursement of $126,500 out of the $160,000 recovery from Liberty Mutual.
After plaintiff brought a declaratory judgment action seeking payment
of this amount, the parties stipulated to the facts, agreed to an escrow of
UIM proceeds, and filed cross-motions for summary judgment. The sole issue
at trial and here on appeal is whether the UIM proceeds received from the
business's policy are available to reimburse plaintiff for the workers'
compensation benefits it paid to Cole.
The statute at issue is 21 V.S.A. Sec. 624, which states in relevant
part:
(a) Where the injury for which
compensation is payable under the provisions
of this chapter was caused under circumstances
creating a legal liability to pay the
resulting damages in some person other than
the employer, the acceptance of compensation
benefits or the commencement of proceedings to
enforce compensation payments shall not act as
an election of remedies, but the injured
employee or the employee's personal
representative may also proceed to enforce the
liability of such third party for damages in
accordance with the provisions of this
section. . . .
* * *
(e) In an action to enforce the liability
of a third party, the injured employee may
recover any amount which the employee or the
employee's personal representative would be
entitled to recover in a civil action. Any
recovery against the third party for damages
resulting from personal injuries or death
only, after deducting expenses of recovery,
shall first reimburse the employer or its
workers' compensation insurance carrier for
any amounts paid or payable under this chapter
to date of recovery, and the balance shall
forthwith be paid to the employee . . . and
shall be treated as an advance payment by the
employer on account of any future payment of
compensation benefits.
(Emphasis added.)
Noting that this Court has not yet decided the question, the trial
court ruled that UIM benefits from the employer's liability carrier are not
subject to a lien in plaintiff's favor under Sec. 624(e), principally because
they are first-party, not third-party, obligations. The court noted that
this was essentially the ruling in two earlier superior court cases raising
substantially the same question and was, as Cole had argued, the decision
in a majority of precedents from other jurisdictions that had considered
the question. This appeal followed.
We reverse because, on its face, the Vermont statute requires a
contrary result. First, it is important to state what this case is not
about. This case is not about the legislative policies underlying Sec. 624.
The statute establishes the right of a workers' compensation carrier to be
reimbursed for payments to an insured employee who obtains personal damages
for injury from a third party. The economic and social considerations
underlying the legislative choice to favor the compensation carrier in this
manner are concerns for the Legislature, not this Court. By requiring
reimbursement of workers' compensation carriers, the statute thereby
operates to lower the cost of workers' compensation insurance.
Nevertheless, because policymaking is the province of the Legislature, our
task is to construe the statute with the aid of the usual rules of
construction.
Cole first argues that the employer's UIM carrier was not a "third
party" within the meaning of Sec. 624, relying both on the text of the statute
and on cases from other jurisdictions
which hold that the UM/UIM carrier does not fall within particular
definitions of third parties. This is a common theme in the "majority
rule" cases. Typical is Rhodes v. Automotive Ignition Co., 275 A.2d 846
(Pa. Super. Ct. 1971), where the court held that the workers' compensation
carrier should not have been reimbursed out of the deceased employee's UM
policy award, because the UM carrier was not a third party. Id. at 848.
The court relied, however, on a state statute providing as follows:
"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[e], his personal
representative, his estate or his dependents,
against such third party to the extent of the
compensation payable under this article by the
employer . . . ."
Id. (quoting P.L. 736 Sec. 319 (1915), as amended, 77 P.S. Sec. 671 (1970)
(current version at Pa. Stat. Ann. tit. 77, Sec. 671 (1992))). Under this
statute, the third party was the uninsured motorist who struck and killed
plaintiff's decedent. This definition contrasts sharply with the concept
of third person in Sec. 624(a), which permits the employee and the workers'
compensation carrier to recover where a legal liability to pay damages is
created in "some person other than the employer." Later references to
"third party" in Sec. 624 relate back to the phrase "some person other than
the employer," as there is nothing in the text or context of the section
that would suggest a different definition.
In sum, it is clear that, within Sec. 624, "third party" means a party
who is not (1) the workers' compensation carrier, (2) the injured worker,
or (3) the employer, notwithstanding that in many other contexts an
agreement between an insurer and an insured would be described as one
between first and second parties, with the phrase "third party" referring
to one who was a stranger to the contract. Thus, we hold that a workers'
compensation insurer who has paid out benefits is entitled to reimbursement
from UM/UIM payments made by an employer's liability carrier. This holding
is consistent with St. Paul Fire & Marine Ins. Co. v. Surdam, 156 Vt. 585,
590, 595 A.2d 264, 266 (1991), where we held:
When a third party is found responsible in a
personal injury action for damages suffered by
the worker, the worker is not permitted double
recovery from both the insurer and third party
for the same injury. Rather, the law evens
out the consequences by permitting the carrier
to recoup the benefits it paid the worker.
Cole also argues that the UIM payments were not "damages" within the
meaning of Sec. 624(a), (e). Again, this argument appears in the cases
propounding the majority rule and other superior court precedents cited by
the trial court. See, e.g, Knight v. Insurance Co. of North America, 647 F.2d 127, 129 (10th Cir. 1981); March v. Pekin Ins. Co., 465 N.W.2d 852,
854 (Iowa 1991); Wincek v. Town of West Springfield, 506 N.E.2d 517, 519
(Mass. 1987).
In each of these cases, the notion that UIM payments cannot be damages
arises from the proposition that UM/UIM policies are contracts and that the
concept of damages is associated with torts. "Courts have pointed out that
`a payment made in performance of a contractual obligation is not a payment
of damages.'" Knight, 647 F.2d at 129 (quoting State Farm Mut. Ins. Co. v.
Fireman's Fund American Co., 550 S.W.2d 554, 557 (Ky. 1977)). "[W]e think
it clear that the Legislature used `damages' to denote the money payable by
a tortfeasor who is liable for injuries caused by his tortious act."
Wincek, 506 N.E.2d at 519.
In none of these cases does a court report that any of the UM/UIM
statutes involved defines UM or UIM payments as damages, though courts
concede that damage amounts are integrally related to the determination of
the proper amount of UM/UIM payments. See, e.g., March, 465 N.W.2d at 854
("Although Pekin's obligation to March is measured by the damages wrought
by the tortfeasor, Pekin's payment to March is not thereby transformed from
a contractual payment to one for damages.").
Vermont's UM/UIM statute is unique among the statutes brought to our
attention by the court or the parties' briefs. 23 V.S.A. Sec. 941(f) states:
For the purpose of this subchapter, a
motor vehicle is underinsured to the extent
that its personal injury limits of liability
at the time of an accident are less than the
limits of uninsured motorists coverage
applicable to any injured party legally
entitled to recover damages under said
uninsured motorist coverage.
(Emphasis added.) Thus, the Vermont statutes equate uninsured
motorist payments with damages. Because there is no difference in concept
between uninsured and underinsured motorist recoveries, this
characterization applies equally to the latter. The theoretical divide
between contract and tort that underlies many of the majority-rule cases
simply does not apply here. Our view is reinforced by the insuring
agreement of the UIM policy, which obligates the UIM carrier to pay all
sums the insured is entitled to recover as damages from the owner or
insurer of the underinsured vehicle.
Cole next argues that a workers' compensation insurer can no more take
privately purchased underinsured motorist benefits than it can take other
private health, life, disability, or indemnity benefits payable to an
injured worker. The simple response to Cole's argument is that UM/UIM
coverage is unlike other privately purchased insurance, and allowing a
workers' compensation insurer to treat a UM/UIM award as a recovery from
the tortfeasor is a rational way to achieve the Legislature's policy goals.
Although Cole's argument suggests a constitutional infirmity, no cases hold
that a reimbursement scheme like Vermont's is constitutionally
questionable.
An insurer may not sell and an insured may not purchase an automobile
liability insurance policy in Vermont without UM/UIM insurance. 23 V.S.A.
Sec. 941(a). Unless the policyholder otherwise directs, UM/UIM coverage will
equal liability coverage. An automobile liability policyholder who is also
covered by workers' compensation insurance knows that if he or she is some
day injured in a non-work-related accident, only the purchase of an
appropriate amount of UM/UIM coverage will guarantee that a damage award
against a tortfeasor will be fully realized. The policyholder is also
presumed to know that, under Vermont law, if an accident is work-related
and workers' compensation is paid, some portion of UM/UIM benefits will be
assigned to the compensation carrier as reimbursement for the workers'
compensation payment. These potential outcomes become part of the
risk/cost analysis that the policyholder uses to determine the personally
optimum amount of UM/UIM coverage to purchase. Thus, the
policyholder who purchases UM/UIM insurance cannot reasonably expect a
windfall based on the happenstance of whether the tortfeasor is uninsured,
underinsured, or adequately insured and whether the accident is
work-related or not. Vermont law requires a policyholder to purchase a
minimum of UM/UIM coverage, and allows a policyholder to purchase more
coverage if he or she desires additional protection against loss, but the
law also places the policyholder on notice that recovery will never exceed
actual damages.
Nor can it be argued that a policyholder subject to the holding we
announce today could be paying a premium for which the policyholder
receives no benefit. If, for example, a policyholder is involved in an
accident with a tortfeasor who is not adequately insured, partial recovery
from the tortfeasor's insurer results in only partial UM/UIM payment.
Similarly, if the policyholder receives payment from a compensation insurer
and a portion of UM/UIM payments is assigned to the workers' compensation
carrier as reimbursement for compensation payments already received, the
policyholder receives only partial UM/UIM payment. In either case, the
benefit that the policyholder receives from UM/UIM coverage is protection
against the probability of deficient recovery from the tortfeasor, not
guaranteed receipt of payment equal to the UM/UIM coverage.
Finally, Cole argues that 21 V.S.A. Sec. 699 voids any agreement
requiring an employee to pay "any portion of the cost of insurance of any
kind maintained . . . by an employer for the purpose of securing
compensation." This provision must be read in pari materia with 21 V.S.A.
Sec. 624. See Robes v. Town of Hartford, 161 Vt. 187, 192, 636 A.2d 342, 346
(1993) ("[T]his Court must read provisions that are part of the same
statutory scheme in pari materia."). Given Cole's broad reading of "any
portion of the cost of insurance," assignment to a workers' compensation
carrier of any insurance proceeds the employee would have received, but for
the assignment, could be said to violate Sec. 699. Such a reading of Sec. 699 is
inconsistent with the language and intent of Sec. 624. But if their
provisions are interpreted harmoniously, Sec. 624 presents a complete and
logical apportionment of risks, costs, and benefits, under various
accident scenarios, among the employee injured in an accident, the
workers' compensation carrier, and the employer's private liability
insurer. Such interpretation comes as close as possible to the ideal we
described in LaBombard v. Peck Lumber Co., 141 Vt. 619, 624, 451 A.2d 1093, 1096 (1982):
[T]he insurance carrier, representing the
employer, comes out even, being without fault
or injury; the third party wrongdoer pays
exactly the damages he would have paid without
any workers' compensation law; the attorney is
reimbursed for services rendered, and the
employee -- in addition to what he has already
received in compensation benefits -- is
entitled to the remainder.
In sum, our construction of Sec. 624 does not conflict with Sec. 699, the
purpose of which is directed at other ills.
Reversed.
FOR THE COURT:
_______________________________________
Chief Justice
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