SC’s Auto Insurance Carriers May Not Offset PIP Benefits by Amounts Insured Receives for Workers’ Comp Benefits
In a tale of the “dueling statutes,” the Supreme Court of South Carolina recently held that insurers providing automobile insurance may not reduce their obligations to provide no-fault personal injury protection (PIP) insurance coverage to insureds by the amount of any workers’ compensation benefits the insured has received for medical expenses [Cothran v. State Farm Mut. Auto. Ins. Co., 2019 S.C. LEXIS 80 (Aug. 7, 2019).
Background
Cothran incurred approximately $40,000 in medical expenses from injuries she sustained in an automobile accident. Because the injuries arose out of and in the course of her employment, her employer’s workers’ compensation carrier paid all of her medical bills. Cothran and her husband were also covered by an automobile insurance policy issued to the couple by State Farm Mutual Automobile Insurance Company (State Farm). That auto policy provided PIP coverage with a limit of $5,000. State Farm refused to pay any PIP benefits for medical expenses based on a “Coordination” provision in the policy that stated the policy’s PIP benefits applied as “excess over any benefits recovered under any workers’ compensation law or any similar law.”
The Cothrans filed the instant lawsuit against State Farm alleging breach of contract and bad faith refusal to pay insurance benefits. The trial court granted summary judgment to the Cothrans on the breach of contract claim, finding the “Coordination” provision violated S.C. Code Ann. § 38-77-144. The court of appeals reversed [Cothran v. State Farm Mut. Auto. Ins. Co., 421 S.C. 562, 808 S.E.2d 824 (Ct. App. 2017) . The Supreme Court granted the Cothrans’ petition for writ of certiorari and reversed the court of appeals, reinstating the summary judgment.
§ 38-77-144: No Setoff
The Court initially observed that S.C. Code Ann. § 38-77-144 provided in relevant part:
If an insurer sells no-fault insurance coverage which provides personal injury protection, medical payment coverage, or economic loss coverage, the coverage shall not be assigned or surrogated and is not subject to a setoff.
The Court continued that with § 38-77-144, the Legislature intended—at least in part—to prevent an insurance company that sells PIP coverage from reducing the amount of PIP it is obligated to pay because the insured received a third-party payment for the same expenses. If State Farm’s “Coordination” provision has this effect, indicated the Court, it is a setoff, and it violates the section.
The Court noted that the Court of Appeals had relied upon the Court’s opinion in State Farm Mutual Automobile Insurance Co. v. Richardson, 313 S.C. 58, 437 S.E.2d 43 (1993), and in particular the Court’s “the Legislature intended the set-off prohibition … to apply only to the tortfeasor” [313 S.C. at 61, 437 S.E.2d at 45]. The Court indicated that Richardson should not be read as expansively as State Farm argued and the Court of Appeals held. The Court stressed that Richardson involved a different policy provision and a different set of facts. The Court continued:
If Richardson is to control this case, it must be because the reasoning is applicable here, not simply because the words we chose to explain our reasoning-when read out of context-might appear to restrict the effect of the statute.
PIP is First-Party Coverage; Workers’ Compensation is Not
As the Court went on to explain, the reasoning of Richardson was not applicable in the instant case. The Court pointed out, in relevant part, that PIP coverage is first-party coverage a policy holder purchases to pay medical expenses no matter who is at fault in causing the accident. Moreover, the key concept embodied in PIP no fault coverage is that an injured person needs to promptly pay expenses necessarily arising out of injuries sustained, and needs support for himself/herself and his/her family during the period of recuperation. On the other hand, while workers’ compensation insurance, said the Court, is also no-fault, it is not first party insurance. Its availability is subject to the provisions of the state’s Workers’ Compensation Act after potentially protracted litigation before the state’s Workers’ Compensation Commission.
Court’s Conclusion
In conclusion, the Court summarized by saying that when an insurer seeks to reduce its obligation to pay benefits based on a third party’s previous payment for the same claim, it is a setoff. Because that was the precise effect of State Farm’s “Coordination” provision, § 38-77-144 prohibited the provision from reducing State Farm’s obligation to pay PIP benefits to the Cothrans. Accordingly, the Court reversed the Court of Appeals and reinstated the summary judgment in their favor.