Uninsured Motorist – Offset of uninsured motorist coverage with workers’ compensation benefits paid

Brief Summary:  Insurance policy language is important to determine if an insurance company is entitled to an offset of uninsured motorist coverage for workers compensation benefits paid.  If the policy contains non-specific offset language as opposed to “reduced by” language, then it must first prove that its payment would parallel a payment from another source before claiming an offset.  Generally, the uninsured motorist carrier is entitled to an offset from policy limits payable, rather than the judgment award, when it proves the total workers’ compensation offset and the UM policy limits, together, are greater than the judgment awarded to the insured.

Analysis:  The Tennessee Court of Appeals decided an interesting case which considered when an insurance company can claim an offset of uninsured motorist coverage by the amount of workers’ compensation benefits paid to its insured.  The Robert Mears v. Kendra M. Williams, W2011-02499-COA-R3-CV, 2012 WL 2832960 (filed July 11, 2012) decision addressed some long standing questions that had developed in light of the 2001 decision of State Farm Insurance Company v. Schubert, 2001 WL 584208 (Tenn. Ct. App. May 31, 2001).

In the Mears case the workers’ compensation payments totaled approximately $110,000.00.  The State Farm uninsured motorist policy limits were $250,000.00.  The total jury verdict at trial was $225,000.00.  As a result, the question was whether State Farm was entitled to an offset against plaintiff’s recovered damages for the loss or expense paid under workers’ compensation law or whether the offset should be applied to the amount of coverage payable under the uninsured motorist policy.  The State Farm uninsured motorist policy provision states:

Any loss or expense paid or payable under any workers’ compensation law, disability benefits law or any similar law will not be paid for again as damages under these (uninsured motorist) coverages. 

The trial court denied State Farm the ability to offset for the workers’ compensation benefits paid to the plaintiff from the policy limits.  The trial court relied on the Schubert decision and found under Schubert State Farm was not entitled to an offset for workers compensation payments because of the policy language. 

The State Farm v. Schubert decision involved a case where there was a total jury verdict of $330,000.00.  There were total UM policy limits of $100,000.00.  There were workers’ compensation payments of approximately $90,000.00.  The Tennessee Court of Appeals considered policy language identical to the policy language in the Mears case at issue.  The Tennessee Court of Appeals in Mears discussed the Schubert decision: 

The Court specifically noted that the Schubert policy lacked the “reduction” language present in both Sims and Hudson, which “clearly stated how the insurer’s liability is to be calculated.”  Instead, the Schubert policy “focused on what the insurance company will not pay. It simply says that if its insured is entitled to recover compensation benefits, it, the insurance company, will not pay those benefits ‘again.’”  Because the $330,000 verdict less the $89,518.18 workers’ compensation benefits left a $170,481.92 balance, the Court determined that requiring State Farm to pay the full $100,000 policy limit would not “have the effect of paying the compensation benefits ‘again.’”

(quotations omitted).  In contrast to the language in Mears and Schubert policies the language in the policy in the Hudson case had specific “reduced by” language as follows:

Any amount payable under the terms of this insurance because of bodily injury sustained in an accident by a person who is an insured under this coverage shall be reduced by ... the amount paid and the present value of all amounts payable on account of such bodily injury under any workers' compensation law, disability benefits law or any similar law.

(emphasis added) Hudson v. Hudson Municipal Contractors, Inc., 898 S.W.2d 187, 188 (Tenn. 1995).

The Mears court distinguished the facts present in this case with the facts present in the Schubert case.  The Court held: 

Because the policy between State Farm and Plaintiff contains no reduction language, State Farm is not entitled to automatically deduct the workers’ compensation benefits paid to Plaintiff.  Instead, it must first prove that its payment would parallel a payment from another source for which offset was contractually provided.  Although the analysis here is the same as in Schubert, the figures in the instant case lead to a different result.  Here, the alleged compensation benefits paid ($114,314.53) and policy limit ($250,000), together, are greater than the insured’s damages ($225,000).  In fact, the policy limit, alone, is greater than Plaintiff’s damages.  Accordingly, disallowing State Farm an offset of any workers’ compensation benefits paid would necessarily require State Farm to pay such benefits “again,” in violation of its bargain with Plaintiff.

As a result, the Tennessee Court of Appeals found that the Schubert decision did not, as a matter of law, deem the language found in the State Farm policy in both Schubert and Mears insufficient to effectuate an offset of workers compensation benefits from the uninsured motorist coverage payable in all circumstances.  Further, T.C.A. 56-7-1205 did not mandate the inclusion of “reduced by” language to obtain an offset.  Rather, the facts of each case will dictate whether the offset is taken from the judgment or policy coverage. 

Under Mears, if insurance policy language discussing a workers’ compensation offset without the “reduced by” provision is used, then to obtain an offset the insurance company must first demonstrate that disallowing the offset would require it to ‘again’ pay for benefits previously conferred by another source.”  Effectively, this means that the determining factor as to whether an offset is allowed, is whether the total workers’ compensation offset and the UM policy limits, together, are greater than the insured’s damages.  In Schubert, this was not the case therefore no offset was allowed.  In Mears, the total workers’ compensation offset and UM policy limits were substantially greater than the jury verdict and therefore an offset was allowed because State Farm would be required to pay such benefits “again”. 

It is important to note, that the “reduced by” language found in Sims and Hudson provide a more favorable offset result for the insurance company.  See Sims v. Stewart, 973 S.W.2d 597 (Tenn. Ct. App. 1999) and Hudson.  The moral of the story, therefore, is insurance companies trying to maximize the chance of a workers compensation benefits offset against the uninsured motorist coverage should use policy language like what is found in Sims and Hudson, not what is found in Schubert and Mears.

Thank you Alisha M. Toll, Esq. for contributions to this post.