Payable PIP deducted from UIM recover even when it looks like it never will be payable and no Minton reduction given for WC offset against UIM: KENTUCKY SCHOOL BOARD ASSOCIATION V. JEWELL (COA 3/7/2008)

KENTUCKY SCHOOL BOARD ASSOCIATION V. JEWELL
INSURANCE:  PIP, WORKERS COMPENSATION AND SUBROGATION
2006-CA-001995
PUBLISHED: AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
PANEL: HENRY PRESIDING; COMBS, ACREE CONCUR
COUNTY: WHITLEY
DATE RENDERED: 3/7/2008

This case has an unsual procedural history since the first decision was not published, then following a request for reconsideration by the COA, the request was granted and a revised opinion published!  A motion for discretion review was filed on 4/7/2008 with the Supreme Court.

This case involved a claimant injured in the scope of employment who settled her disputed workers compensation claim for $25,000 and was assigned the subrogation rights in exchange for her future medicals.  She then settled for the $25,000 policy limits of the liability carrier and pursued a claim for underinsured motorist benefits (UIM).  A verdict was received in excess of the liability limits, but a post-verdict dispute arose on the applicability of the offsets for workers compensation and "payable" PIP as it applied to the UIM benefits.

Jewell had received $17,734.55 in workers compensation benefits, and her health insurer had also paid some of her medical bills as there was a dispute over a pre-existing condition such that $8,307.45 of her workers compensation settlement went to pay her health insurer for medical bills (which had not been paid by PIP).  Workers comp carrier assigned Jewell its third party subrogation rights.

With regard to her personal injury claim, she settled with tortfeasor for policy limits of $25,000.  PIP had paid $333.45 in benefits for lost wages not covered by workers compensation and then proceeded directly against KSBA for underinsured motorist benefits.

The jury awarded a total of $101,102.77 which included $70,558.77 for medical expenses, $5,544.00 for lost wages, and $25,000 for pain and suffering.  The trial court applied a $25,000 offset from the liability settlement with the tortfeasor and the $333.45 paid by PIP.

The UIM carrier sought an additional offset for the $26,826.55 in past medical bills and wages and the remainder of the "payable" PIP of $19,666.55 (the policy provided for $20,000 in basic PIP rather than the standard and usual $10,000).  The UIM carrier’s position was that failure to award an offset would result in a double recovery per Cinn. Ins. Co. v. Samples.

The COA agreed with the UIM carrier and held a payment made in performance of a contractual obligation [by a UIM carrier ] is not a payment of “damages.”  Therefore, the rights which Jewell gained in her settlement agreement do not include subrogation rights against the KSBA (UIM), since the workers ’ compensation carrier had no subrogation rights against the UIM carrier. A workers ’ compensation carrier cannot assign a subrogation right that it itself does not possess.

COA also rejected the argument that the claimant was entitled to an offset per AIK v. Minton such that Jewell’s attorneys’ fees and expenses of $30,307.72 plus legal expenses of $4,781.73 should be deducted from the offset claimed.  The COA concluded the last sentence in KRS 342.700(1) was a limit on the subrogation right and recovery from the responsible third party – Minton did not apply here.

With regard to the PIP offset for the full $20,000 that was "payable", the COA held that due to the presence of the word “payable ” in the statute, Kentucky courts have concluded that the full amount of BRB payable may be offset against a claimant ’s damages, whether or not a claimant actually received the BRB.

The COA then affirmed the $25,000 deduction from the liability limits, and upon remand the lower court shall deduct from the jury verdict workers compensation benefits of $26,042 for past medical expenses and $784.55 for lost wages, and $20,000 for payable basic reparation benefits.

Comments:  This decision has holes in it.  First, the workers compensation settlement included payment of medical bills paid by health insurance rather with those amounts billed versus paid were not reflected in this decision (not to mention the value of that subrogation payment may have been compromised as part of the settlement of the workers compensation claim).  Second, the workers compensation subrogation amount was not reduced to reflect Minton as it applied to the underlying $25,000 liability settlement and any pro rata division of that recovery as it applied to the claimant and the workers compensation subrogor (even though this right of subrogation was assigned it still needed to be reflected in that portion of the recovery against the tortfeasor).  Third, no mention was made in the decision regarding the MRVA provision that workers compensation is primary and thus PIP would not be "payble" at all per statute.  Fourth, is PIP still "payable" even after the statute of limitations for a claim has expired?  Fifth, the "payable" portion of PIP and the applicable case law refers to "basic reparation benefits" and not just reparation benefits such that applying the $20,000 of "basic" reparation benefits in the insurance policy is questionable.

This case has unanswered questions and needs to be reviewed by the Supreme Court to answer these questions.

Although all are in agreement that the law provides for no duplicate payments, there is an obvious disagreement and potential hardship in calculating the amount of that payment in light of subrogation, assignment, disputed claims, and PIP that will never  be payable per SOL and WC. It is one thing to assert that a claimant should not be paid twice; but it is an entirely another matter to take money away from the claimant and allow the contractual UIM carrier to reap the benefit of a phantom PIP payment and no reduction of the subrogation claim’s value per Minton.  "Payable" within the context of workers compensation, statute of limitations, and the actual circumstances needs to be cleared up.

Digested by Michael Stevens

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