Jared K. Cook, BridgeTower Media Newswires
In states that do not have a no-fault system like New York does, if you are injured in a car accident and the other driver is at fault, the other driver’s insurance pays your damages. But what happens if the other driver doesn’t have insurance, or what if your damages exceed the other driver’s policy limits?
In order to protect against such risk, insurance companies created uninsured and underinsured motorist policies. Uninsured motorist policies protect against the risk that the other driver does not have liability insurance. Underinsured motorist policies protect against the risk that the other driver’s insurance has a limit that does not exceed the injured person’s damages.
Because an injured person may still have some partial compensation before reaching the uninsured or underinsured motorist policy, most states allow an underwriter of an uninsured or underinsured motorist policy to deduct the value of other benefits recovered by the injured person from its liability under the policy. But the value of other benefits is not always clear.
Consider this example: an employee is injured in an accident while driving his employer’s car, acting within the scope of his employment. The employee is not at fault, but the other driver’s policy has a $30,000 limit, and the employee’s damages exceed that limit. Because he was injured while acting within the scope of his employment, the employer’s workers compensation carrier pays for the employee’s medical care, but at discounted rates, as permitted by state law. The medical providers bill for a little less than $250,000 worth of services, but the workers compensation carrier pays only a little more than $115,000. Does the underinsured motorist carrier get to deduct the full $250,000 billed as the value of the services received by the injured person as workers compensation benefits, or only the $115,000 that the workers compensation carrier actually paid?
Maryland’s highest court had to answer this question earlier this year in Westfield Insurance Company v. Gilliam. In that case, everyone agreed that the underinsured motorist carrier could deduct the value of all temporary and permanent disability payments the injured person received from the workers comp carrier, and that it could deduct the $30,000 he received from the other driver’s insurer. But the parties disagreed about the amount it could deduct as the value of the medical care paid for by the workers comp carrier as workers compensation benefits. The injured person sued the underinsured motorist insurer for breach of contract for deducting the full amount billed.
The carrier removed the case to federal court based on diversity of citizenship, and the parties filed cross-motions for summary judgment. Rather than make an “Erie guess” about how the Maryland courts would resolve the issue, the federal district court certified the question to the Maryland Court of Appeals under Maryland’s version of the Uniform Certification of Questions of Law Act.
The underinsured motorist carrier argued that it should be permitted to deduct the entire value of the services received because regardless of what amount the workers comp carrier paid, the injured person still received the entire value of the services, and because he did not have to pay for any portion of those services, those services are a benefit that he received as compensation for his accident. Moreover, the carrier argued, if it were not for the fact that state law permits workers comp carriers to pay at a discount, the injured person would have had to pay the entire value of the bills for his medical care, and that the discount itself was therefore a workers compensation benefit that it should be able to deduct for.
There is some intuitive appeal to this argument from the underinsured motorist carriers’ perspective. But the court disagreed. The court looked first to the text of the statute authorizing the offsets for other recovery and noted that although it used the word “benefit,” the statute speaks of “benefits payable,” benefits that are “recovered” and benefits for which the workers comp carrier “has not been reimbursed,” suggesting that the statute uses “benefits” in a narrow sense of monetary amounts actually paid by the workers comp carrier, not in the broad sense of the full value of any treatment paid for by the carrier at a discount.
But the court went on to hold that this meaning is also consistent with the purpose of the statute. The purpose of the offset, according to the court, is to place the injured person in as close as possible a position as they would have been if the other driver had been fully insured. The court first noted that because the workers comp carrier is only permitted to place a lien on the injured person’s recovery for amounts actually paid, the workers comp lien on a recovery from a fully insured tortfeasor without any underinsured motorist claim would only reduce the injured person’s net recovery by the amount that the workers comp carrier actually paid. The court reasoned that if it adopted the carrier’s position, the injured person in an underinsured motorist claim would have their recovery reduced by more than it would be reduced if the other driver had been fully insured. The court therefore agreed with the injured person that only amounts actually paid for medical care by the workers comp carrier could be deducted from the underinsured motorist recovery.
Although not all states always permit the type of deduction that was at issue in Gilliam, deductions for other coverage are commonplace in a variety of insurance situations. New York, for example does not permit an offset of workers comp benefits from mandatory uninsured motorist coverage, but does permit such an offset from supplemental uninsured and underinsured motorist coverage.
The Gilliam case is therefore useful for practitioners for two reasons: First, the reasoning of the Maryland court of appeals may be a useful guide for how other courts will analyze the application of an offset in a policy in other situations where what is deductible under the offset is disputed.
Second, the Gilliam case is a good reminder that even when a party may be able to remove a case from state court to federal court based on diversity of citizenship, if the case turns on a novel question of state law, it may still be possible to have the ultimate question in the case decided by a state court under a certified question statute. Counsel should think carefully about whether it is advisable to request certification, especially when the question is one that may depend heavily on the public policy of the state.
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Jared K. Cook is an associate with Vahey Law Offices, PLLC, a litigation firm. Mr. Cook focuses his practice in the areas of employment litigation, commercial litigation, federal practice, appeals, and professional ethics. He can be reached at jcook@vaheylaw.com.
