Appeal from the Order of the Commonwealth Court entered June 4, 2008 at No. 1853 CD 2007, reversing the Order of the Court of Common Pleas of Venango County entered September 7, 2007 at No. 17-2005.
The opinion of the court was delivered by: Madame Justice Orie Melvin
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN JJ.
950 A.2d 362 (Pa. Cmwlth. 2008)
We granted review to determine whether it is a violation of public policy to exclude from underinsured motorist ("UIM") coverage a claim by an individual eligible for workers' compensation benefits. For the following reasons, we conclude that a workers' compensation exclusion in an employer-sponsored insurance policy violates public policy and is, therefore, unenforceable. Accordingly, we reverse the order of the Commonwealth Court.
The facts pertinent to our review are undisputed. On October 31, 2002, Appellant, Frank Heller ("Heller")*fn1 , was severely injured in an automobile accident during the course of his employment as a police officer for Sugarcreek Borough ("Borough"). Workers' compensation covered Heller's medical expenses and two-thirds of his salary.*fn2 The Borough paid Heller the remainder of his salary.
Heller recovered the $25,000 policy limit from the tortfeasor's insurance carrier, Allstate Insurance Company. Heller's losses and damages, however, far exceeded the liability coverage.*fn3 Accordingly, Heller notified his insurer of a potential UIM claim and sought UIM benefits from the Borough pursuant to a policy issued by Appellee, Pennsylvania League of Cities and Municipalities t/d/b/a Pennsylvania Pooled Risk Insurance for Municipal Entities a/k/a Penn PRIME Trust ("Penn PRIME").*fn4 The Borough's policy provided UIM coverage up to $100,000 per person or per accident. Penn PRIME denied Heller's claim pursuant to a policy exclusion which states that UIM coverage does not apply to "[a]ny claim by anyone eligible for workers['] compensation benefits that are the statutory obligation of the Member." Liability Coverage Document, at 32.
Following Penn PRIME's denial of benefits, Heller filed a declaratory judgment action in the Court of Common Pleas of Venango County. Heller sought an order voiding the subject exclusion on the grounds that it is contrary to public policy. The parties stipulated to the relevant facts and cross-motioned for summary judgment.
On September 7, 2007, the trial court granted Heller's motion for summary judgment and denied Penn PRIME's motion for summary judgment. The court initially assessed the ability of an injured employee to collect workers' compensation and UIM benefits. The trial court recognized that a repealed section of the Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 Pa.C.S. § 1735, prohibited an insurer from excluding UIM benefits based on the receipt of workers' compensation.*fn5 The court observed that after the repeal of section 1735,*fn6 an employee injured during the course and scope of his employment could still seek workers' compensation and UIM benefits. Gardner v. Erie Insurance Company, 722 A.2d 1041, 1046-47 (Pa. 1999). Citing our decision in Selected Risks Insurance Company v. Thompson, 552 A.2d 1382 (Pa. 1989), the trial court reasoned that prior to the adoption of section 1735, an exclusion based on the receipt of workers' compensation was void as against public policy. The court noted that such an exclusion violated public policy by, inter alia, creating a windfall for the insurer because it collected a separate premium for the UIM coverage. The trial court further concluded that the exclusion frustrated the objectives of the current MVFRL by denying the workers' compensation carrier the right of subrogation. Harper v. Providence Washington Insurance Co., 753 A.2d 282, 286 (Pa. Super. 2000). Accordingly, the trial court found that the exclusion violated public policy.
On appeal to the Commonwealth Court, a divided panel reversed the decision of the trial court. Heller v. Pennsylvania League of Cities and Municipalities, 950 A.2d 362 (Pa. Cmwlth. 2008). The court began its analysis with a historical discussion of the interplay between the MVFRL and the Pennsylvania Workers' Compensation Act, 77 P.S. §§ 1-2626. The Commonwealth Court explained that 75 Pa.C.S. § 1735 prohibited insurance companies from excluding UIM benefits based on the receipt of workers' compensation. The court derived this premise from our decision in Selected Risks, supra, where we voided an exclusionary provision in an insurance policy that permitted a reduction in UIM benefits in an amount equivalent to workers' compensation benefits.
The Commonwealth Court reviewed our case law regarding the interrelation of UIM and workers' compensation after the repeal of section 1735. The court observed that in Gardner, supra, we held that Act 44's repeal of section 1735 was not a revocation of the right to dual recovery. The Commonwealth Court explained that under the post-repeal law, workers' compensation benefits are no longer deducted from UIM benefits, but a workers' compensation carrier is allowed to seek subrogation.*fn7
The court also discussed our decision in Pennsylvania National Mutual Casualty Co. v. Black, 916 A.2d 569 (Pa. 2007), where we reviewed a set-off provision allowing for a reduced recovery under the UIM portion of an insurance policy when the insured recovered under the liability portion of the same policy. We concluded that the set-off did not violate public policy because it did not conflict with the MVFRL and was simply a cap on total coverage, consistent with the premiums paid by the insureds.*fn8 Id. at 580-81.
Within this framework, the Commonwealth Court evaluated the public policy at issue. Consistent with our precedent, the court stated that it must consider whether the MVFRL or the Workers' Compensation Act contains provisions that "specifically prohibit the inclusion of an exclusion to UIM coverage based upon the receipt of workers' compensation benefits, and if not, whether legal precedent warrants a conclusion that the exclusion violates public policy." Heller, 950 A.2d at 370. The Commonwealth Court found that the exclusion is not prohibited by any specific statutory provisions and determined that there is no case law directly on point.*fn9 Concluding that the courts should not act as a "super-legislature" and re-draft contract documents, the Commonwealth Court held that the conflicting policy considerations favored the insurer. Accordingly, the court found that the subject exclusion did not violate public policy.
Judge Friedman authored a dissenting opinion wherein she explained that the compensatory scheme established by Act 44 shifts the ultimate burden for benefits from the employer and the workers' compensation carrier to the tortfeasor and the insurance carrier. She opined that the employee is entitled to seek UIM benefits because workers' compensation does not cover damages for, inter alia, pain and suffering. Selected Risks, 552 A.2d at 1388. Judge Friedman stated, "[I]f a UIM carrier excludes from its UIM coverage anyone who is eligible for [workers' compensation] benefits, a [workers' compensation] carrier cannot assert a subrogation interest against UIM payments and an employee cannot recover all applicable damages." Heller, 950 A.2d at 373. Thus, she reasoned that Penn PRIME's exclusion defeats the two-pronged public policy of: (1) shifting the burden to UIM carriers where a third-party tortfeasor causes a work-related injury; and
(2) enabling the injured employee to recover for losses and damages not covered by workers' compensation.
Heller filed a petition for allowance of appeal with this Court, which we granted limited to the following issue:
Whether or not this Court should strike down an exclusion in Appellee's policy providing that any person receiving workers' compensation benefits was ineligible for UM/UIM benefits?
Heller argues that the policy exclusion in question violates the MVFRL. Since the MVFRL requires that an insurer provide UM/UIM coverage unless rejected, Heller avers that a workers' compensation exclusion is an impermissible way of denying coverage that is statutorily required. Kmonk-Sullivan v. State Farm Mutual Auto. Insurance Co., 788 A.2d 955 (Pa. 2001); Prudential Property and Casualty Insurance Co. v. Colbert, 813 A.2d 747 (Pa. 2002). Accordingly, Heller maintains that allowing the exclusion to stand frustrates the legislative scheme underlying the MVFRL.
Heller also posits that while we have often discussed public policy concerns, the term remains undefined. Nonetheless, he claims that there is a clear violation of public policy where a policyholder pays a premium for illusory coverage. Heller contends that "virtually all" UIM claims will be made by Borough employees eligible for workers' compensation, leaving a "shallow pool" of individuals to whom coverage will apply.*fn10 Thus, Heller maintains that Penn PRIME received a windfall by charging a premium for illusory coverage.*fn11
Heller also argues that the Commonwealth Court failed to consider the "made whole" doctrine.*fn12 Heller observes that the Workers' Compensation Act limits the benefits available to an injured worker, covering medical expenses and two-thirds of the worker's average weekly wage. Since workers' compensation provides only a partial benefit, Heller maintains that the recovery of UIM benefits is essential for him to be made whole.*fn13
According to Heller, it is the insurer's burden to pay the benefits necessary to compensate him for his injuries. In support of this position, Heller broadly reiterates the concerns expressed in Judge Friedman's dissent, asserting that Act 44 shifts the burden to pay from the workers' compensation carrier to the insurer. Heller contends ...