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Tannenbaum v. Nationwide Insurance Co.

April 28, 2010


Appeal from the Order of the Superior Court No. 1269 EDA 2006 dated 3/5/07 affirming the Bucks County Court of Common Pleas, Civil Division at No. 0404111-25-6 dated 4/13/06.

The opinion of the court was delivered by: Mr. Justice SAYLOR*fn1


ARGUED: April 16, 2008


This appeal requires assessment of the scope of an offset provision of the Motor Vehicle Financial Responsibility Law.

In December 2000, Alan Tannenbaum, M.D. ("Appellee"), suffered severe injuries in a motor vehicle accident, rendering him permanently disabled from his previous hospital employment. In addition to Social Security disability payments, Appellee applied for and received income-loss benefits under a group plan provided by the hospital, as well as further benefits pursuant to two personal disability policies. He also commenced a civil action against the driver of a truck involved in the accident and his employer, and a substantial monetary settlement was consummated.

Subsequently, Appellee sought to recover income-loss benefits under the underinsured motorist ("UIM") provisions of an applicable vehicle policy issued by Appellant, Nationwide Insurance Company ("Nationwide"). Nationwide countered that it was entitled to offset the benefits Appellee received under his group plan and personal disability policies.

In support, Nationwide invoked Section 1722 of the Motor Vehicle Financial Responsibility Law,*fn2 entitled "Preclusion of recovering required benefits," which provides:

In any action for damages against a tortfeasor, or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth in this subchapter, or workers' compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719 (relating to coordination of benefits) shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers' compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719.

75 Pa.C.S. §1722. According to Nationwide, the statute required an offset favorable to UM/UIM insurers for monies recovered by the insured as first-party benefits and/or which had historically been subject to subrogation. In the latter regard, Nationwide highlighted an interrelated provision of the MVFRL, Section 1720, which curtails subrogation relative to such funds. See 75 Pa.C.S. §1720 (providing, in relevant part, that "there shall be no right of subrogation or reimbursement from a claimant's tort recovery with respect to... benefits paid or payable by a program, group contract or other arrangement whether primary or excess under section 1719 (relating to coordination of benefits)").

Nationwide also relied on a decision of the federal district court sitting in its diversity jurisdiction, Austin v. Dionne, 909 F. Supp. 271 (E.D. Pa. 1995), which sanctioned a Section 1722 disability-benefit offset against a plaintiff's recovery under his automobile insurance policy. Austin reasoned that Section 1722 "reflects the Pennsylvania legislature's goal of preventing double recovery from both an employer's disability insurance fund and a tortfeasor." Id. at 275. Nationwide took the stance that Appellee's receipt of disability benefits similarly overlapped with his UIM claim, thereby amounting to an attempt -- as Nationwide put it -- to "double dip."

Appellee countered that recovery of benefits for which he paid (or otherwise contributed to premiums) did not represent a double recovery, and such benefits were not subject to Section 1722 offset. In support of his position, Appellee relied substantially on the rationale of Panichelli v. Liberty Mut. Ins. Group, 543 Pa. 114, 669 A.2d 930 (1996).

As relevant to Appellee's position, Panichelli held that sick pay and Social Security disability benefits received by a policyholder could not be deducted by an insurer in calculating the insured's "actual loss of gross income" under the first-party-benefits provisions of the MFVRL contained in its Section 1712(2), 75 Pa.C.S. §1712(2). The Court reasoned that, in light of the insured's contribution to payment for these benefits, they were to be considered "in excess of, and not in duplication of, the income loss benefits payable under §1712(2)." Panichelli, 543 Pa. at 118, 669 A.2d at 932; see also id. ("Panichelli's receipt of both employer provided sick leave benefits and social security disability benefits... does not result in 'double dipping.' These are benefits for which the employee has paid in the form of lower wages for the sick leave benefits and in the form of payroll deductions for the social security benefits."); 75 Pa.C.S. §1719(a) ("Any program, group contract or other arrangement for payment of benefits such as described in [the first-party provisions, including Section 1712,] shall be construed to contain a provision that all benefits provided therein shall be in excess of and not in duplication of any valid and collectible first party benefits...."). Furthermore, Appellee observed, Panichelli's rationale had been extended by the intermediate appellate courts to a variety of contexts. See Browne v. Nationwide Mut. Ins. Co., 449 Pa. Super. 661, 666-67, 674 A.2d 1127, 1129-30 (1996) (referencing Panichelli's contribution-based reasoning in holding that Social Security disability benefits are not subject to Section 1722 offset, albeit advancing a primary rationale resting on the recognition that such benefits were not subject to subrogation in the first instance); Carroll v. Kephart, 717 A.2d 554, 558 (Pa. Super. 1998) (indicating that, pursuant to Panichelli and Browne, "benefits for which a plaintiff has paid for or earned through his employment are not within the purview of §1722 and the receipt of those benefits do[es] not constitute a double recovery").

Two of three members of the panel of arbitrators selected to resolve the parties' dispute agreed with Nationwide, with the chairperson referencing Austin's rationale in support of the majority position. Thus, although the panel rendered an award of approximately $1.9 million in Appellee's favor, it also implemented an offset, favorable to Nationwide, reflecting the nearly one-million dollars in disability benefit payments Appellee had received under his employer plan and personal policies. Contesting this offset, Appellee filed a petition to set the award aside in the common pleas court, acting as a statutory appeals court.

Upon its review, the court found the offset to have been improper and vacated the arbitrators' award. It reasoned that the arbitrators erroneously relied upon Austin, whereas they should have followed the Panichelli line, particularly Carroll, as these matters all were decided after Austin.

On Nationwide's subsequent appeal, the Superior Court affirmed in a published opinion, see Tannenbaum v. Nationwide Ins. Co., 919 A.2d 267 (Pa. Super. 2007), upon a rationale tracking Appellee's position. According to the court, Nationwide's arguments confused the impermissible double recovery of overlapping benefits with the permissible recovery of excess ones. See id. at 269. The Superior Court observed that the relevant disability policies were defined, on their terms and by statute, as affording "excess" benefits, and that excess insurance, by its nature, "'provide[s] protection to the insured in addition to other coverage which might be available to him.'" See id. at 270 (quoting Conn. Indem. Co. v. Cordasco, 369 Pa. Super. 439, 443, 535 A.2d 631, 633 (1987) (quoting, in turn, Ins. Co. of N. Am. (INA) v. Cont'l Cas. Co., 575 F.2d 1070, 1072 (3d Cir. 1978))). Moreover, the court extended the Panichelli paid-for litmus into the Section 1722 context. See id. at 270-71 (citing Panichelli, Browne, and Carroll).*fn3

According to the court:

All of these cases involve types of personally paid insurance different than that of [a]ppellee herein, and [a]ppellant insists that the holdings in each are limited to the specific type of excess insurance considered. We are not persuaded, as the overarching principle remains constant: where the personal policies resorted to are both separate from UIM, or UM, coverage, and paid for exclusively by the claimant either directly, or through payroll deductions which result in lower wages, payments received from these coverages do not duplicate benefits under the MVFRL as they are fundamentally different from those benefits.

Should [Nationwide's] argument prevail, insurance companies, not claimants, would receive a windfall, as premiums for excess coverage would have been paid to no avail; no benefit could accrue since any recovery other than UIM payments would perforce be designated "double." Such a result would offend not only the statute but public policy.

Id. at 271.

On Nationwide's petition, we allowed appeal to consider whether the Superior Court and the common pleas court correctly interpreted Section 1722.

Presently, Nationwide maintains that the plain language of Section 1722 -- "a person who is eligible to receive benefits under... any program, group contract or other arrangement for payment of benefits... shall be precluded from recovering the amount of benefits paid or payable [thereunder]" -- must control. 75 Pa.C.S. §1722 (emphasis added). Nationwide asserts that the dramatic alteration of the UM/UIM landscape reflected in Section 1722 was designed to eliminate double recoveries in automobile accident litigation, thus remediating spiraling insurance costs plaguing the driving public. See, e.g., Brief for Nationwide at 7 ("The 'double dip' in automobile accident claims was a primary force in the upward escalation of costs. The [MVFRL] was enacted to specifically remedy this problem."). According to Nationwide, the statute's thrust lies in the elimination of the collateral source rule in automobile tort and insurance litigation.*fn4 Such effect, Nationwide explains, is reflected not only in Section 1722's plain terms, but also in the preclusion of subrogation under the interrelated provisions of Section 1720. See Brief for Nationwide at 15 ("Subrogation is premised upon duplicate recovery. Section 1722 eliminated the 'double dip'. Section 1720 maintained the balance and equilibrium by similarly abrogating subrogation.").

Nationwide portrays the Superior Court's holding as embodying a judicially-created, rule-swallowing exception which wholly undermines the legislative reform efforts embodied in the MVFRL. See, e.g., Brief for Nationwide at 7-8 ("The system adopted by the [Superior] Court abandons a hallmark of the reform effort, namely the §1722 preclusion, thereby re-instituting the 'double dip' in motor vehicle cases.").*fn5 It is Nationwide's position that such holding is also perverse, as it permits duplicative recoveries of income losses, while leaving intact the prohibition against subrogation designed as a coordinate restriction. See Brief for Nationwide at 19. Nationwide distinguishes the Panichelli line of cases as pertaining to first-party claims, where the focus is upon the source of premium payments; whereas, in the tort and UM/UIM scenarios, under the plain terms of Section 1722, the source of such payments is irrelevant. Nationwide also refutes the Superior Court's allusion to insurer windfalls, explaining that policyholders do not purchase a right to "double dip." See, e.g., id. at 33.

Appellee, on the other hand, advances the position previously vindicated in the prior reviewing courts. Specifically, he maintains that disability benefits paid for by an insured, and/or earned through his employment, are fundamentally different from benefits under the MVFRL and do not raise the specter of double recovery or qualify for Section 1722 offset. See Brief for Appellee at 13 ("Stated another way, the MVFRL was not intended to give an insurer the benefit of a collateral source paid for out of pocket by a victim of another's negligence."). Additionally, the Panichelli line of decisions continues to play a prominent role in Appellee's present contentions. See, e.g., Brief for Appellee at 16 ("Since the inception of the MVFRL, the Supreme Court and the Superior Court have permitted recoveries without an offset and/or credit even in situations where the benefits could have been construed as falling within the purview of the MVFRL.... [These] consistent decisions... have not resulted in escalating insurance premiums and/or the destruction of the MVFRL.").

In responding to Nationwide's arguments, Appellee downplays the overall cost-containment objective of the MVFRL, contending that the statute's main purpose was to deter drivers from failing to insure their vehicles. He also indicates that, when interpreting the MVFRL, courts are bound to apply the construction most favorable to the affordance of coverage for the insured. See id. at 13 (citing Danko v. Erie Ins. Exch., 428 Pa. Super. 223, 630 A.2d 1219 (1993), aff'd, 538 Pa. 572, 649 A.2d 935 (1994) (per curiam)). Both Appellee and its amicus, the Pennsylvania Association for Justice, reassert their perspective that Nationwide is improperly attempting to secure a windfall. See, e.g., Brief for Appellee at 23 ("It is undisputable that Appellant, Nationwide, did not contemplate any of the disability policies in underwriting the coverages purchased by [Appellee], nor did Appellant, Nationwide, reduce [Appellee's] premiums as a result of his separate purchase of disability benefits.").

Appellee also indicates that offset would lead to unfair setoffs for other benefits and create untenable uncertainties in matters governed by the MVFRL. In this regard, he hypothesizes many ripple effects of enforcing Section 1722 on the terms advocated by Nationwide. For example, Appellee contends that such a holding would reward insureds who fail to secure adequate insurance and/or apply for disability benefits after accidents in a timely manner, while punishing those who act responsibly. See, e.g., Brief for Appellee at 33 ("Stated another way, Nationwide's position would make a claimant more secure in recovery of future lost wage benefits if they failed to have disability insurance."). He also forecasts that a holding favorable to Nationwide's position would encourage UM/UIM carriers to delay investigations and settlements to await decisions from disability carriers. See id. (predicting "years of tortured litigation between claimants and their insurance company, undeniably resulting in higher costs to both insurers and insureds").

Appellee recognizes the seriousness of the social-policy issues faced by the General Assembly in its efforts to reform automobile-insurance law; nevertheless, he attempts to confine the discussion of such concerns to the arena of medical insurance. See, e.g., Brief for Appellee at 34 ("As was persuasively posited to the Court by the [a]ppellee in [Panichelli] perhaps the most scandalous aspect of the No-Fault Act was the ability of an individual to receive medical treatment paid for by their work-related health insurance carrier, and then to turn the bills over to their automobile carrier for payment directly to the insured."). According to Appellee, disability benefits simply are not of a group/program/arrangement type for purposes of Section 1722, and such classification is restricted to the heath-related benefits referenced in Section 1719(b). See id. at 34-35.

As a threshold matter, we consider whether Appellee's group plan and personal disability policies are group/program/arrangement vehicles for payment of benefits within the meaning of Section 1722. As noted, Appellee argues they are not, as the Legislature contemplated that Section 1722's reach would be limited to health insurance benefits. There are multiple difficulties with such position.

First, Appellee initially stresses that the relevant group plan and personal policies are of a group/program/arrangement type for purposes of Section 1719 in developing his position that disability benefits are to be deemed excess. See, e.g., Brief for Appellee at 23 ("Based upon the language of §1719(a), both the [group plan] and the private disability policy must be construed as providing benefits in excess of, and not in duplication of, the income loss benefits payable under §1712(2)."). While it would not be impossible for the Legislature to use the same terms differently in two distinct provisions of a statutory scheme, here, the General Assembly expressly cross-referenced Section 1719 in Section 1722 as providing the definition for group/program/arrangement benefits. See 75 Pa.C.S. §1722 (addressing group/program/arrangement benefits "as defined in section 1719"). Thus, the position that the terms should be construed differently as between the two sections is untenable.

Second, Panichelli, the decision principally relied upon by Appellee, specifically disapproves the position that Section 1719 is limited to health benefits. See Panichelli, 543 Pa. at 118, 669 A.2d at 932 (rejecting the argument that examples used in Section 1719(b) demonstrated a legislative intent to encompass only health care benefit plans within the definition of programs, while characterizing the reach of the group/program/arrangement language as "extremely broad"); accord Browne, 449 Pa. Super. at 664-65, 674 A.2d at 1128 ("The Panichelli court concluded that §1719 must be interpreted to take into consideration programs for the payment of income loss benefits.").

Finally, the history of Section 1722 confirms the Legislature intended to extend its reach beyond health benefits. In point of fact, the initial version of Section 1722, as enacted in 1984, was entitled "Preclusion of pleading and proving of required medical benefit," and the statute originally was so limited in substantive scope. Act of Feb. 12, 1984, P.L. 26, No. 11 §3 (superseded) (emphasis added). The same day, however, an amended version of Section 1722 was passed which eliminated all references to medical benefits. See 75 Pa.C.S. §1722, Historical and Statutory Notes.*fn6 To accept Appellee's position would be to undermine the obvious broadening effect of the substantial modification reflected in this removal of restrictive terms.

For the above reasons, there is no tenable basis to support limiting Section 1722's scope to health benefits or, conversely, the impact of Appellee's theory of a paid-for litmus to income-loss benefits. Accordingly, we hold that the relevant disability benefits received by Appellee fall within ...

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