Pennsylvania Supreme Court Rules That UIM Offset Clause Entitles UIM Carrier to Offset Amount of All Damages Recovered by Plaintiff From All Parties Sued

In its January 21, 2014 Opinion in the UIM offset case of AAA Mid-Atlantic Ins. Co. v. Ryan, No. 12 MAP 2013 (Pa. 2014)(Opinion by Todd, J.), the Pennsylvania Supreme Court addressed the issue of whether, under a UIM policy of insurance, the amount of the insured injured party's recovery may be offset by the amount of all damages paid in satisfaction of the underlying judgment, or by only the amount of compensation paid under the auto insurance policy of the underinsured third party tortfeasor defendant who caused the accident.

By way of further background, the injured party plaintiff filed a third party lawsuit against the defendant tortfeasor driver, along with a separate lawsuit against the City of Philadelphia and PennDOT asserting a defective design of a roadway.

The case against PennDOT was dismissed prior to trial by agreement. 

The third party tortfeasor driver settled by tendering his $25,000 liability limits.

The remaining case against the City of Philadelphia proceeded to an arbitration in which the arbitrator awarded the Plaintiff a gross award of $500,000 but apportioned liability among the parties as 50% against the defendant tortfeasor driver, 35% against the injured party plaintiff, and 15% against the City.

Taking away 35% apportioned to the injured party plaintiff from the gross award entered resulted in a net award of $325,000.

Pursuant to the doctrine of joint and several liability which applied in this matter, the City paid the plaintiff $300,000 and, as noted, the defendant driver paid his $25,000 liability limits.  Thus, the plaintiff was paid the full amount awarded.

Thereafter, the injured party plaintiff turned to her own auto insurance carrier, AAA Mid-Atlantic Insurance Company for UIM coverage.

The UIM carrier denied coverage under its "Limit of Liability" clause which provided, in pertinent part, that "[t]he limit of liability shall be reduced [] by all sums paid because of the "bodily injury" by or on behalf of persons or organizations who may be legally responsible."

The "Limit of Liability" clause further provided that "[n]o one will be entitled to receive duplicate payments for the same elements of loss."

After a UIM arbitration panel awarded the injured party plaintiff a UIM recovery that only considered the defendant tortfeasor driver's liability limits in terms of any offset, the UIM carrier litigated the issue up the appellate ladder to the Pennsylvania Supreme Court. 

Throughout the appeal process, the conflicting public policy interests of (1) cost containment and (2) compensating those injured by a tortfeasor who lacks adequate coverage, were hotly debated.

As noted, by the time the case reached the Pennsylvania Supreme Court, that Court framed the question presented as involving whether a UIM recovery may be offset against all damages paid in satisfaction of an underlying third party judgment, or may such a UIM recovery only be offset by the amount paid out under the defendant tortfeasor driver's automobile liability insurance policy.

After thoroughly analyzing the variety of cogent arguments raised on both sides of the issue, the Pennsylvania Supreme Court in the case of AAA Mid-Atlantic Ins. Co. v. Ryan ruled that the "Limit of Liability" clause in the UIM policy did not violate the public policy of affording compensation to parties injured by underinsured drivers since, under the facts of this case, the injured party was fully compensated for his injuries by receiving the entire amount of damages awarded by the underlying third party arbitration panel through payments by the defendant tortfeasor driver and the City of Philadelphia.

In addition to there being no violation of the public policy noted under the circumstances presented in this case, the Pennsylvania Supreme Court also noted that the application of the "Limit of Liability" clause also upheld the long-standing rule against allowing a plaintiff a "double recovery" for the same injuries.

Stated otherwise, as the injured party plaintiff was found to have been fully compensated for her injuries in this matter, the underlying purposes of Pennsylvania's Motor Vehicle Financial Responsibility Law would not be furthered by allowing for an additional recovery against the UIM carrier for the same injuries claimed.

Anyone wishing to review the Pennsylvania Supreme Court's decision in the case of AAA Mid-Atlantic Ins. Co. v. Ryan may click this LINK.

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