Oh Tannenbaum, Oh Tannenbaum! Early Christmas Gift to UM/UIM Carriers From Pennsylvania Supreme Court

Pennsylvania -- Automobile Liability

The Pennsylvania Supreme Court kicked off the holiday season for UM/UIM carriers early with its decision in Tannenbaum v. Nationwide Insurance Company, 992 A.2d 859 (2010), reversing an order from the Superior Court in the process. At issue was whether a UIM carrier could offset the benefits that its insured had received under his group plan and personal disability policies. A majority of the Supreme Court said it could.

Alan Tannenbaum had been permanently disabled following a motor vehicle accident. A doctor by profession, he was receiving Social Security disability payments, income loss benefits under his hospital-employer's group plan, and benefits from two personal disability policies when he applied for income loss benefits under the UIM provisions of his motor vehicle policy with Nationwide. (He had also filed and settled a suit against the tortfeasor.)

Nationwide argued that it was entitled to offset the benefits that he had received under his group plan and personal disability policies, citing Section 1722 of Pennsylvania's Motor Vehicle Financial Responsibility Law ("Preclusion of recovering required benefits"). Tannenbaum disagreed, saying that recovery of benefits for which he had paid (or to which he had contributed via premiums) did not represent a double recovery. He cited Panichelli v. Liberty Mut. Ins. Group, 543 Pa. 114, 669 A.2d 930 (1996), a first-party benefits case which had held that an insurer could not deduct sick pay and Social Security disability benefits when calculating "actual loss of gross income" under Section 1712 of the MVRFL.

Panichelli had been rendered unable to work as a result of injuries sustained in the accident and had filed a claim with his insurer, Liberty Mutual, for loss of income benefits. For part of the income loss period, however, Panichelli had received sick pay benefits from his employer in an amount equal to his gross income. Liberty Mutual took the position that it was entitled to a set-off for the sick pay benefits that Panichelli had received and did not pay any income loss benefits for that time period. Panichelli challenged the decision, and, ultimately, the Supreme Court agreed with him that the sick pay was in the nature of an excess benefit and was not a duplication of benefits available under Section 1712.

Tannenbaum argued that the Panichelli rationale would apply to his claim as well. And although the Superior Court agreed with Tannenbaum, the Supreme Court did not. It agreed with Nationwide's argument that the "plain language" of §1722 distinguished this matter from the issue in Panichelli. The Court - somewhat reluctantly and in a split decision - found "no tenable basis" to support limiting §1722's scope to health benefits:

Once it is accepted that the relevant income-loss benefits received by [Tannenbaum] fall within the group/program/arrangement classification, it becomes apparent that they are subject to the specified statutory offset. . . .

We are sensitive to the perspective that the above-straightforward reading of Section 1722 reveals that the Legislature has attacked the highly complex and nuanced problem of rising automobile insurance costs with a peculiarly blunt mallet. . .

Ultimately, it is not our task to address or reconcile the very difficult policy questions posed by the above, since the Legislature has been clear in it approach. . .

In summary, under Section 1722's plain terms, an insured's recovery under UM/UIM policies may be offset by group/program/arrangement benefits, including disability benefits purchased, in whole or in part, by the insured, at least so long as those benefits are not subject to subrogation.

Thus, the disability benefits received by Tannenbaum would fall within §1722's proscription against double recovery. The Court distinguished Panichelli by noting that it was "not a UM/UIM case," and thus, §1722 never came into play in that case.

Two days after the Tannenbaum decision was announced, the Superior Court issued its own insurer-friendly ruling in a significant UIM/credit-offset case. With its April 30, 2010, decision in D'Adamo v. Erie Insurance Exchange, 2010 Pa. Super. 77 (2010), the Superior Court held that a UIM carrier can take a credit for a tortfeasor's automobile liability insurance coverage limits as well as the tortfeasor's separate personal umbrella policy limits.

The amount of allowable credit due to the UIM carrier was the issue in D'Adamo. The D'Adamo claimants had received $250,000 under the tortfeasor's motor vehicle policy, but they had also received $500,000 limits from the tortfeasor's personal umbrella policy. The Erie policy had an exhaustion clause that provided: "When the accident involves underinsured motor vehicle, we will not pay until all other forms of insurance under all bodily injury liability bonds and insurance policies and self-insurance plans applicable at the time of the accident have been exhausted by payment of their limits or have been resolved by settlement or by final resolution of the court." (Emphasis supplied.)

Erie wanted to take a credit (against the $850,000 UIM arbitration award) in the total amount of $750,000. The claimants argued that it was only entitled to a credit of $250,000. The Superior Court agreed with Erie, finding that the exhaustion clause was not ambiguous and that applying it to the umbrella policy limits would not violate public policy. Thus, Erie was allowed the full $750,000 credit.

*Brigid is an associate in the Harrisburg ,Pennsylvania, office. She can be reached at (717)-651-3710 or bqalford@mdwcg.com.

Defense Digest, Vol. 16, No. 3, September 2010