Berrey v. Travelers Indem. Co. of Am., No. 13-3869 (7th Cir. 2014)

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Berrey was injured in an automobile accident at work. The at‐fault driver, who did not work with Berrey, carried liability insurance, but the cost of Berrey’s injuries exceeded the policy’s limit. Berrey received partial compensation under her employer’s workers’ compensation scheme but, because her employer was not responsible for the accident, state law granted the workers’ compensation carrier a lien on any recovery from the at‐fault driver. The at‐fault driver’s insurer paid its full policy limit directly to the workers’ compensation carrier. Travelers provided underinsured motorist coverage to Berrey’s employer. The policy covered an employee injured by a third-party who did not carry adequate auto insurance to fully compensate for the employee’s loss. Travelers paid Berrey the difference between her total calculated damages and the at‐fault driver’s policy limit. Berrey claims that Travelers improperly deducted the at-fault driver’s insurance payment from the total it owed to Berrey because that payment was made directly to the workers’ compensation carrier rather than to Berrey herself. The district court entered summary judgment in favor of Travelers. The Seventh Circuit affirmed, finding that the language of the policy supported Travelers’s calculation and that Berrey’s reading would undermine the purpose of underinsured motorist coverage.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 13 3869 DEANNE BERREY, Plaintiff Appellant, v. TRAVELERS INDEMNITY COMPANY OF AMERICA, Defendant Appellee. ____________________ Appeal from the United States District Court for the Central District of Illinois. No. 3:11 cv 03426 Sue E. Myerscough, Judge. ____________________ ARGUED SEPTEMBER 26, 2014 DECIDED OCTOBER 22, 2014 ____________________ Before FLAUM, MANION, and KANNE, Circuit Judges. FLAUM, Circuit Judge. Deanne Berrey was injured in an automobile accident at work. The at fault driver, who did not work with Berrey, carried liability insurance, but the cost of Berrey s injuries exceeded the insurance policy s limit. Berrey received partial compensation under her employer s workers compensation scheme but, because her employer was not legally responsible for the accident, state law granted 2 No. 13 3869 the workers compensation carrier a lien on any recovery Berrey received from the at fault driver. To satisfy that lien, the at fault driver s liability insurer paid its full policy limit directly to the workers compensation carrier. Defendant Travelers Indemnity Company of America provided underinsured motorist coverage to Berrey s em ployer. The policy covered an employee injured by a third party tortfeasor who did not carry adequate auto insurance to fully compensate the employee for her loss. Pursuant to this policy, Travelers paid Berrey the difference between her total calculated damages and the at fault driver s policy lim it. Berrey claims that Travelers improperly deducted the at fault driver s insurance payment from the total it owed to Berrey because that payment was made directly to the work ers compensation carrier rather than to Berrey herself. She argues that the language of Travelers s underinsured motorist policy precludes such a deduction. Because we read the lan guage of the policy to support Travelers s calculation and be cause Berrey s reading would undermine the purpose of un derinsured motorist coverage, we disagree and affirm the dis trict court s grant of summary judgment in favor of Travelers. I. Background On March 26, 2009, Berrey, an employee of Curry Ice & Coal, Inc., was on duty when her vehicle collided with an other driven by Sheri A. Campbell. Campbell, who was not employed by Curry Ice, was found at fault for the accident. An arbitral panel constituted pursuant to an agreement be tween Berrey and Curry Ice issued a binding opinion, which calculated Berrey s total damages at $310,000, inclusive of all medical expenses. No. 13 3869 3 Berrey, an Illinois resident, initiated three independent proceedings to recover for her injuries: (1) a workers com pensation claim against Curry Ice; (2) a liability claim against Campbell; and (3) an underinsurance claim against Travel ers, a Connecticut corporation which provided underinsured motorist ( UIM ) coverage to Curry Ice for the vehicle that Berrey was driving at the time of the accident. Berrey first received $103,224.02 in workers compensa tion benefits.1 Pursuant to § 5(b) of the Illinois Workers Compensation Act, 820 Ill. Comp. Stat. 305, Curry Ice ac quired a workers compensation lien against any recovery that Berrey subsequently obtained from Campbell.2 Camp bell s liability insurance carried a policy limit of $100,000, which her insurer paid directly to Curry Ice to satisfy the workers compensation lien. 1 This figure includes $51,535.27 in medical bills; $26,106.25 in temporary total disability benefit payments; and $25,582.50 in permanent partial disability benefit payments. 2 When an Illinois employee is injured by a third party while acting with in the scope of her employment, she is entitled to workers compensation from her employer but may also sue the third party tortfeasor for dam ages. 820 Ill. Comp. Stat. 305/5(b). The Illinois Workers Compensation Act grants the employer a lien on any recovery obtained from the tort feasor, up to the total value of the workers compensation benefits paid to the employee. Id.; see also Ullman v. Wolverine Ins. Co., 269 N.E.2d 295, 298 (Ill. 1970) ( [A]n employee who has received compensation under the Act is required to reimburse the employer from any recovery the employee receives from a third party legally responsible for the employ ee s injuries. ). The purpose of the legislative scheme is to allow[] both the employer and the employee an opportunity to reach the true offend er while preventing the employee from obtaining a double recovery. J.L. Simmons Co. ex rel. Hartford Ins. Grp. v. Firestone Tire & Rubber Co., 483 N.E.2d 273, 276 (Ill. 1985). 4 No. 13 3869 The underinsured motorist policy issued to Curry Ice by Travelers (the Policy ) carried a limit of $1 million per acci dent. Travelers paid Berrey $210,000 the difference be tween her total calculated damages ($310,000) and the pay ment from Campbell s insurer toward the workers compen sation lien ($100,000). Under the Policy, which covered all vehicles owned by Curry Ice, Travelers agreed to pay all sums the insured [employee] is legally entitled to recover as compensatory damages from the owner or driver of an underinsured motor vehicle. Any recovery is subject to the following limitations: D. Limit of Insurance ¦ . 2. Except in the event of a settlement agreement, the Limit of Insurance for this coverage shall be reduced by all sums paid or payable: a. By or for anyone who is legally re sponsible, including all sums paid un der this Coverage Form s Liability Cov erage. b. Under any workers compensation, disability benefits or similar law ¦ . 4. No one will be entitled to receive dupli cate payments for the same elements of loss under this Coverage Form and any Liability Coverage Form. Berrey claims that, according to these provisions, Travel ers owes her an additional $100,000. She first argues that the language of Section D.2 permits only a reduction in the policy No. 13 3869 5 limit (here, $1 million) equal to workers compensation bene fits paid, not a reduction in the amount due if the insured s claim falls below the policy limit. Berrey also contends that, under Section D.4, she never receive[d] the $100,000 pay ment from Campbell because it was paid directly to Curry Ice to satisfy the workers compensation lien; therefore, she would receive no impermissible duplicate payment[] if Travelers were to pay her an additional $100,000. The district court rejected these arguments and awarded summary judgment to Travelers, determining that the $210,000 UIM payment fulfilled Travelers s obligations un der the Policy. The court also denied Berrey s subsequent motion to alter or amend the judgment, emphasizing that Berrey received the benefit of the $100,000 paid by Camp bell s insurer toward the workers compensation lien and that awarding Berrey an additional $100,000 would therefore constitute a prohibited double recovery. Berrey appeals. II. Discussion We review a district court s award of summary judgment de novo. O Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011). Because our jurisdiction is based on diversity of citizenship, the resolution of substantive issues is gov erned by the applicable state law. Aeroground, Inc. v. Center Point Props. Trust, 738 F.3d 810, 813 (7th Cir. 2013). The par ties agree that Illinois law applies. The Illinois Supreme Court has noted that the underlying purpose of underinsured motorist coverage is to place the insured in the same position he would have occupied if the tortfeasor had carried adequate insurance. Phoenix Ins. Co. v. Rosen, 949 N.E.2d 639, 646 (Ill. 2011) (citation and internal 6 No. 13 3869 quotation marks omitted). The legislative history of § 143a 2 of the Illinois Insurance Code, 215 Ill. Comp. Stat. 5, which establishes the parameters of UIM coverage, confirms that it serves to fill the gap between the claim and the amount available from the underinsured. Sulser v. Country Mut. Ins. Co., 591 N.E.2d 427, 430 (Ill. 1992) (quoting 81st Gen. As semb., House Proceedings 44 45 (Ill. 1980)). UIM coverage is not intended to permit an injured employee to collect more than she would have been entitled to receive from the tort feasor alone. Here, if Campbell had carried liability insurance in the amount of $310,000 (Berrey s total damages) rather than $100,000, Campbell s policy would have fully compensated Berrey for her loss. Of that hypothetical $310,000 insurance payment, $103,224.02 would have been paid to Curry Ice to satisfy the workers compensation lien and the remainder ($206,775.98) would have gone to Berrey. In reality, Berrey has $210,000 (the UIM payment from Travelers) in her pos session, and the workers compensation lien has been satis fied via the $100,000 payment from Campbell s insurer.3 She is therefore already in a marginally better position than she would have occupied had Campbell carried adequate insur ance. Awarding Berrey an additional $100,000 would leave her with $310,000 in pocket, plus the $103,224.02 she re ceived in workers compensation benefits, for a total of over 3 Although the $100,000 payment from Campbell s liability insurer was slightly lower than the total value of workers compensation benefits Berrey received ($103,224.02), the lien was nevertheless deemed fully satisfied. The workers compensation lien operated only against pay ments Berrey recovered from Campbell and the outstanding balance ($3,224.02) exceeded Campbell s policy limit. No. 13 3869 7 $413,000 in damages an unmerited windfall that far exceeds the arbitral panel s damages calculation. To permit such a double recovery would flout the stated purpose behind Illi nois s underinsured motorist coverage scheme. The plain meaning of the Policy language also contra dicts Berrey s position. Illinois law requires us to interpret an insurance policy as a whole, taking into consideration the type of insurance purchased, the overall purpose of the con tract, and the nature of the risks involved. Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 75 (Ill. 1997). The policy s language must be construed according to the general rules of contract interpretation: so long as the language is unambiguous, it will be enforced as written, but only to the extent that it does not contravene public policy. Hobbs v. Hartford Ins. Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005). In the event of an ambiguity, the policy s terms should be construed strictly against the drafter (here, Travelers). Am. States Ins. Co., 687 N.E.2d at 75. However, a policy will be considered ambigu ous only where its language is subject to more than one rea sonable interpretation we will not strain to find an ambi guity where none exists. Hobbs, 823 N.E.2d at 564. Consid ered in the context of the Policy as a whole, we conclude that the language of Section D.4 is susceptible to only one rea sonable interpretation. As an initial matter, Berrey correctly points out that Sec tion D.2 refers specifically to policy limits that is, the max imum amount of underinsurance available not the pay ment due on a claim whose value is less than the applicable policy limit. Because here the $1 million policy limit is signif icantly higher than Berrey s total damages ($310,000), the 8 No. 13 3869 question of limit reductions is irrelevant and Section D.2 is inapplicable.4 Instead, Section D.4 is determinative. It specifies, No one will be entitled to receive duplicate payments for the same elements of loss under this Coverage Form and any Liability Coverage Form. Berrey contends that this provi sion is not implicated because she never receive[d] the $100,000 payment from Campbell s insurer. Because that amount was paid directly to Curry Ice to satisfy the workers compensation lien, as opposed to being paid first from Campbell s insurer to Berrey and then from Berrey to Curry Ice, she claims that the requested $100,000 from Travelers would not constitute a duplicate payment. However, the simple act of cutting out the middleman cannot alter the conclusion that Berrey receive[d] Camp bell s payment within the meaning of Section D.4. Although the $100,000 was not paid directly to her, she obtained the full benefit of that payment in its satisfaction of the workers compensation lien. Had Campbell made the $100,000 pay ment directly to Berrey, Berrey would have been obligated to apply that payment toward the workers compensation lien herself. See Sulser, 591 N.E.2d at 428. Further, according to Illinois law, Campbell s insurer would have risked liability 4 The district court found that although Section D.2 explicitly refers only to policy limits, when read together with Section D.4, it clearly [is] meant to allow a setoff of any amounts recovered in workers compensa tion benefits by the insured. Berrey v. Travelers Indem. Co. of Am., 917 F Supp. 2d 873, 881 (C.D. Ill. 2013). While this may be a plausible reading of the Policy, we need not strain the text of Section D.2 to extend to claims like Berrey s, where policy limits are not at issue. No. 13 3869 9 under the lien if it had not paid the $100,000 directly to Cur ry Ice. Under the Illinois Workers Compensation Act, once an insurer receives notice of a workers compensation lien, it may not enter into a settlement agreement with an injured employee without the consent of her employer. See 820 Ill. Comp. Stat. 305/5(b) ( No release or settlement of claim for damages by reason of [employee s injury by a third party] ¦ shall be valid without the written consent of both employer and employee ¦ . ); see also Hartford Accident & Indem. Co. v. D.F. Bast, Inc., 372 N.E.2d 829, 833 (Ill. App. Ct. 1977). Given the structure of the Illinois workers compensation scheme, the fact that Campbell s insurer paid the $100,000 directly to Curry Ice presumably as a matter of conven ience had no practical effect on the amount that Berrey walked away with at the end of the day. To hold, based on a mere technicality, that Berrey did not receive the $100,000 payment would be to unreasonably interpret Section D.4, and Illinois law permits us to consider only reasonable in terpretations of insurance policy language. See Hobbs, 823 N.E.2d at 564. Berrey relies almost exclusively on the Illinois Appellate Court opinion, Roberts v. Northland Insurance Co., 685 N.E.2d 371 (Ill. App. Ct. 1997), overruled on other grounds by 705 N.E.2d 762 (Ill. 1998), to support her reading of the term re ceive. In Roberts, the court calculated the amount by which UIM coverage providers could reduce their policy limits via a setoff of workers compensation benefits paid. At first glance, the facts appear similar to those of the instant case: Roberts was injured on the job by an underinsured third party tortfeasor and was partially compensated for his loss through a combination of workers compensation benefits, 10 No. 13 3869 the tortfeasor s liability insurance, and underinsured motor ist coverage. Id. at 372. The applicable policy provisions al lowed the UIM coverage providers to reduce their policy limits by amounts received both from workers compensa tion and from the tortfeasor. Id. Roberts s total estimated damages were in excess of $1 million. 705 N.E.2d at 763. He received $246,114.26 in workers compensation benefits. 685 N.E.2d at 372. The tortfeasor s liability coverage, which was limited to $50,000, was applied directly to the workers com pensation lien. Id. at 374. At issue was whether the UIM pro viders could deduct $246,114.26 from their policy limits as a setoff for workers compensation benefits paid or whether they were limited to a deduction of only $196,114.26 the difference between the workers compensation benefits and the $50,000 payment from the tortfeasor. In holding that a deduction of only $196,114.26 was ap propriate, the court concluded that, because Roberts did not actually recover the $50,000 from the tortfeasor but ra ther, that amount was applied directly to the workers com pensation lien, the trial court did not err in denying a setoff for the full $246,114.26.5 Id. 5 The Roberts court noted that after the tortfeasor s $50,000 payment was applied to the workers compensation lien, the workers compensation benefits were reduced by the $50,000 received from [the tortfeasor], for a net benefit of $196,114.26. 685 N.E.2d at 372. This calculation of net benefits is questionable. The $50,000 payment may have reduced the amount of the lien that Roberts s employer obtained against the tortfea sor, but it did not alter the value of the benefits themselves. Whether we calculate the benefits Roberts received as $246,114.26 from workers compensation or as $196,114.26 from workers compensation plus $50,000 from the tortfeasor s liability insurer, the fact remains that Rob erts received tangible benefits totaling $246,114.26, which perhaps the No. 13 3869 11 Although on appeal, the Illinois Supreme Court did not directly address the question of whether Roberts received the $50,000 payment from the tortfeasor s insurance carrier, the court noted in its recounting of the factual history that the tortfeasor s liability insurer had paid [Roberts] $50,000 pur suant to [the tortfeasor s] policy. 705 N.E.2d at 763. This phrasing casts doubt on the appellate court s conclusion that Roberts did not recover that payment. As the district court below correctly observed, Nothing in the Illinois Supreme Court s opinion reflects the Illinois Appellate Court s find ing that [Roberts] never received $50,000 from the tortfeasor because it was applied to the workers compensation lien. Berrey v. Travelers Indem. Co. of Am., No. 11 3426, at 10 11 (C.D. Ill. Nov. 20, 2013). Further, regardless of whether we must accept the appel late court s characterization of the tortfeasor s insurance payment, Roberts is not controlling here. Roberts dealt with reductions in policy limits rather than in amounts due. There, the court grappled with the limits of coverage under a UIM policy where the plaintiff s actual damages exceeded any potentially applicable policy limit. Roberts s actual damages totaled more than $1 million while the available UIM coverage was limited to $820,000, before any deductions UIM insurers should have been permitted to offset. Contrary to the sug gestion of the district court below, a deduction in that amount would not have constituted an impermissible double setoff. The Illinois Supreme Court partially overruled Roberts, see 705 N.E.2d 762, but did not analyze the correctness of the appellate court s arrival at the $196,114.26 figure. However, irrespective of the accuracy of the Illinois Appellate Court s reasoning, Roberts presented a distinct set of facts and, as a result, does not govern here. 12 No. 13 3869 for workers compensation benefits received or payments made by the tortfeasor. 685 N.E.2d at 372. Given a maximum limit less than the total amount of Roberts s damages, the Roberts court faced a situation where, no matter how strict its ruling on setoffs, Roberts would remain undercompensated for his loss. Whatever the reasoning of the Roberts court s denial of the $50,000 setoff, that denial simply ensured that less of Roberts s damages went unpaid it did not create a scenario that placed Roberts in a better position than he would have occupied had the tortfeasor carried liability in surance sufficient to compensate him for his loss. The court s refusal to allow the $50,000 UIM limit reduction did not permit Roberts a double recovery. By contrast, Travelers s UIM insurance policy carries a limit of $1 million an amount that far exceeds any actual damages Berrey incurred. To refuse to consider the $100,000 payment from Campbell s insurer as an amount that Berrey receive[d] would lead to an impermissible double recov ery, leaving Berrey better off than she would have been had Campbell possessed sufficient insurance. The Roberts court faced no such contravention of the purpose underlying UIM coverage. As a result of this crucial distinction, Roberts does not bind us here. III. Conclusion For the foregoing reasons, we AFFIRM the district court s grant of summary judgment in favor of Travelers.

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