Pennsylvania Supreme Court adopts as law a “no coverage” exception to the equitable rule, precluding an insurer from pursuing subrogation against its own insured.

In the course and scope of his employment as a shipwright, the claimant slipped and fell on an icy sidewalk on the employer’s premises, sustaining injuries. The employer had a commercial hull policy from Acadia Insurance Company, the insurer. The insurer paid benefits to the claimant under its commercial hull policy. 

Eventually, the claimant filed a claim for workers’ compensation benefits, which the employer challenged, arguing that the exclusive remedy was under the Jones Act. The employer also joined the workers’ compensation carrier (SWIF) in the event it was determined that the Workers’ Compensation Act was the exclusive remedy. SWIF alleged that their policy had expired at the time of the injury and, thus, a claim against the Uninsured Employers Guaranty Fund (UEGF) was filed.

In a bifurcated proceeding, the Workers’ Compensation Judge determined that the claimant was a seaman and was, therefore, covered exclusively under the Jones Act. On appeal, the Workers’ Compensation Appeal Board reversed. On remand, the judge awarded the claimant workers’ compensation benefits and determined that, because the employer did not have a workers’ compensation insurance policy at the time of injury, it would be responsible for payment of the award that exceeded the benefits paid under the commercial hull policy. The judge also held that the insurer was not entitled to subrogation because it had correctly paid the claimant under the commercial hull policy. The judge ordered the UEGF to pay the benefits if the employer failed to do so. The claimant and UEGF appealed to the Board. 

The Board affirmed the Workers’ Compensation Judge in concluding that § 319 of the Act precluded the insurer from seeking subrogation. The claimant then appealed to the Commonwealth Court, which held that the Board erred in holding that the claimant was entitled to Jones Act benefits and workers’ compensation benefits for the same injury. However, the court affirmed the Board’s holding that an insurer cannot subrogate against its own insured.

On appeal to the Pennsylvania Supreme Court, the insurer took the position that the facts of the case demonstrated an exception to the general equitable prohibition against an insurer seeking subrogation against its own insured. The Supreme Court agreed and held that there was a “no coverage exception” which permits insurer to seek subrogation against the insured for payments made toward injuries not covered by the policy. According to the Supreme Court, the exception applied in this case as the insurer’s commercial hull policy, which was a Jones Act policy, did not cover the claimant in that the Workers’ Compensation Act’s exclusive remedy applied. 
 

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