Among the issues unresolved since the introduction of underinsured motorist coverage in California by the 1984 passage of Ins C 11580.1(p) is the computation of the award by the arbitrator in a case where the claimant is covered by workers’ compensation at the time of injury. Assume the following:
Plaintiff, while on the job, sustains injuries in a motor vehicle collision as a result of defendant’s negligence. Plaintiff’s workers’ compensation carrier (WCC) pays $30,000 for medical bills, temporary disability benefits, and permanent disability benefits on behalf of plaintiff. Defendant’s insurer tenders its policy limits of $25,000 in settlement of the claim of plaintiff and the WCC’s lien claim. Agreement is reached that WCC will accept $10,000 of that sum in full settlement of it’s lien claim, and plaintiff will receive the remaining $15,000. The vehicle plaintiff was driving at the time of the collision had $100,000 in underinsured motorist coverage. Plaintiff’s case proceeds to arbitration against underinsured motorist carrier (UIMC) and the arbitrator awards $100,000. What amount is payable by UIMC to plaintiff?
Plaintiff should argue that the sole credit to which UIMC is entitled is the credit for the third party settlement from defendant, $25,000, and thus the amount payable to plaintiff by UIMC I $75,000. The $25,000 credit is clearly indicated pursuant to Ins C 11580.2(p)(5) which states:
The insurer paying a claim under this subdivision shall, to the extent of such payment, be entitled to reimbursement or credit in the amount received by the insured from the owner of the underinsured motor vehicle or the insurer of such owner operator.
Is UIMC entitled to a further credit based upon workers’ compensation benefits paid on behalf of plaintiff? Insurance Code 11580.2(h) states in part:
Any loss payable under the terms of the uninsured motorist endorsement or coverage to or for any person may be reduced:…
(1) By the amount paid…under any workers’ compensation law. That section clearly applied to uninsured motorist claimants. However, is it applicable in the underinsured motorist situation? Attorney Ron Barkin of Berkeley has raised an argument which would make that statute inapplicable here. The introductory portion of ins C 11580.2(p) states: “If the provisions of this subdivision shall prevail.” Thus, the issue is whether subdivision (p)(5) is the sole statement of the applicable law as to credit to apply in the underinsured motorist situation, it would have included that credit in 11580.2(p)(5), or expressly stated that 11580(h) was applicable.
UIMC would argue that the two subdivisions are not in conflict. Subdivision (p)(5) is intended to address an issue of credit unique to underinsured motorist situations, and its statement of credit should in no way be deemed an exclusive statement of applicable credits. For example, credit is routinely given pursuant to most policies for amounts paid to the plaintiff under the policy’s medical payment coverage. Moreover, UIMC would argue that there is no legitimate public policy rationale for applying a workers’ compensation credit to an uninsured motorist claimant, while refraining to apply such a credit to an underinsured motorist claimant. Therefore, failure to apply a credit here would result in a “windfall” recovery to plaintiff.
Plaintiff might respond to this argument by referring to the insurance product he purchased–$100,000 in underinsured motorist coverage. It is already clear from the application of 11580.2(p)(5) that UIMC can never be responsible for payment of $100,000; the most it will ever owe is $100,000 less the amount of defendant’s policy limits. If a further credit is given for workers’ compensation benefits paid out, UIMC will have then provided benefits, in this example, very much less than the amount of the statute, is not plaintiff, as a consumer, entitled to benefits at least approaching the policy limits of the product he or she purchased?
Assuming the arbitrator denies plaintiff’s argument and chooses to give UIMC a credit for workers’ compensation benefits, what is the applicable credit? Should the credit be $55,000, the sum of the $25,000 third party settlement and the $30,000 gross paid out by WCC; or should the credit be $45,000, the sum of the third party settlement and the $20,000 net payment (after third party reimbursement) by WCC? In at least one case known to the author, an underinsured motorist carrier has argued for a credit based on the gross expenditure by WCC. Insurance Code 11580.2(h)(1), cited earlier, states that the credit is an uninsured motorist case should be the amount “paid under any workers’ compensation law.” It certainly seems reasonable, if this statute is applied in the underinsured motorist context, to consider the compensation carrier’s reimbursement from the third party settlement in computation of the credit. There may in fact be cases when the amount, and it would certainly seem inequitable for such reimbursement to be ignored in the computation of credit.
Resolution of the above issues must await applicable appellate court determination. Such issues are the inevitable result of the imposition of a regulatory scheme for underinsured motorist claims on a statue drafted to regulate uninsured motorist claims, a different and distinct benefit system.