Vermont Supreme Court Rules AGAINST Allstate

Feeley v. Allstate Insurance Co. (2004-191); 178 Vt. 642; 882 A.2d 1230

 

2005 VT 87

 

[Filed 17-Aug-2005]

 

                                 ENTRY ORDER

 

                                 2005 VT 87

 

                      SUPREME COURT DOCKET NO. 2004-191

 

                             FEBRUARY TERM, 2005

 

  Randal Feeley                        }       APPEALED FROM:

                                       }

                                       }

       v.                             }       Franklin Superior Court

                                       }     

  Allstate Insurance Company          }

                                       }      DOCKET NO. S89-00 Fc

 

                                                Trial Judge: Howard E.

                                                             VanBenthuysen

 

             In the above-entitled cause, the Clerk will enter:

 

       ¶  1.  Defendant Allstate Insurance Company appeals from a Franklin

  Superior Court judgment on plaintiff Randal Feeley’s claim for underinsured

  motorist (UIM) benefits following a work-related motor vehicle accident.

  At issue in Allstate’s appeal is whether Feeley’s UIM policy allows

  Allstate to deduct the amount of workers’ compensation benefits Feeley

  received pursuant to New York law from the UIM proceeds due under his

  personal policy with Allstate.  The trial court entered judgment against

  Allstate on Feeley’s claim, and we now affirm. 

 

       ¶  2.  Feeley is a Vermont resident who was working for a New York

  transportation company at the time of the motor vehicle accident giving

  rise to this litigation.  The driver responsible for the accident was

  underinsured, and his liability insurer paid the policy’s $25,000

  liability limit after the accident.  Feeley was covered by his employer’s

  New York workers’ compensation policy, and he received benefits pursuant to

  New York law.  Feeley sought additional compensation for his injuries under

  a Vermont-issued UIM policy with a $300,000 limit.  Coincidentally,

  Allstate was both the workers’ compensation carrier for Feeley’s New York

  employer and his Vermont UIM insurer.

 

       ¶  3.  Allstate refused to pay Feeley the full amount of UIM

  benefits available under his policy.  Allstate believed that Feeley’s

  policy entitled it to reduce the UIM obligation by the amount of workers’

  compensation Allstate had paid Feeley-totaling approximately

  $200,000-pursuant to New York law.  Seeking to enforce the terms of the UIM

  policy, Feeley filed a declaratory judgment action against Allstate in

  Franklin Superior Court.  While admitting that New York law prohibited

  Allstate, in its capacity as a workers’ compensation insurer, from placing

  a lien on Feeley’s UIM proceeds, the company urged the Franklin Superior

  Court to interpret Feeley’s UIM policy to allow a reduction in UIM proceeds

  by the amount of workers’ compensation benefits he received from Allstate.

  The company argued that the reduction was necessary to prevent Feeley from

  receiving “double recovery.”

  

       ¶  4.  In a preliminary order, the trial court ruled that (1) New

  York law governed Feeley’s receipt of workers’ compensation, and (2)

  pursuant to New York law, Allstate could not recoup its workers’

  compensation payments from UIM proceeds payable under Feeley’s Vermont

  policy.  The court reserved the ultimate question of whether Vermont law or

  the UIM policy itself provided a basis for the offset Allstate sought until

  after the parties completed arbitration on the amount of Feeley’s damages.

  After the arbitration panel set Feeley’s damages at $450,000, Feeley moved

  for summary judgment.  Allstate had paid Feeley only $210,000 in UIM

  benefits (the arbitration panel’s noneconomic damages award) so Feeley

  asked the court to enter judgment for the remaining amount owed under his

  Allstate policy. (FN1)  The trial court granted Feeley’s motion and entered

  judgment in his favor.

 

       ¶  5.  Allstate appeals, advancing the same arguments it presented

  to the trial court.  Like the trial court, we review Allstate’s claims

  under the summary judgment standard, which allows the court to enter

  judgment for any party if the material facts are undisputed and the law

  supports the judgment.  V.R.C.P. 56(c)(3); Robertson v. Mylan Labs., Inc.,

  2004 VT 15, ¶ 15, 176 Vt. 356, 848 A.2d 310.  

 

       ¶  6.  Before addressing Allstate’s arguments, we note that this

  dispute arose because Allstate played two roles here.  Allstate was both

  the workers’ compensation insurer for Feeley’s employer, obligated to pay

  Feeley benefits in accordance with New York law, and Feeley’s Vermont UIM

  insurer with obligations to the insured mandated by the Vermont

  Legislature.  In this case, the role with which we are concerned is the

  latter: Allstate as a Vermont UIM insurer.

 

       ¶  7.  Allstate argues that the UIM policy it furnished to Feeley

  gave the company the right to reduce its UIM obligation by “all amounts

  payable under any workers compensation law, disability benefits law, or

  similar law, Automobile Medical Payments, or any similar automobile medical

  payments coverage.”  The provision at issue is enforceable so long as it is

  not inconsistent with Vermont’s UIM law.  See Sanders v. St. Paul Mercury

  Ins. Co., 148 Vt. 496, 507, 536 A.2d 914, 921 (1987) (explaining that the

  Court will enforce plain meaning of an insurance policy provision in the

  absence of ambiguity, statutory violation, or “inherently unfair or

  misleading language”).  The critical question, then, is whether Vermont’s

  UIM statute, 23 V.S.A. § 941, allows an insurer to reduce the insured’s UIM

  payment by the amount of workers’ compensation benefits that are payable to

  the insured pursuant to the laws of another state.

  

       ¶  8.  Our analysis begins with the purpose of § 941, the

  uninsured/underinsured motorist provision of Vermont’s Financial

  Responsibility Law, 23 V.S.A., Chapter 11.  Motor vehicle insurers may not

  sell an automobile liability policy in Vermont without coverage for

  accidents involving uninsured (UM) or underinsured motorists.  23 V.S.A. §

  941(a); The Travelers Cos. v. Liberty Mut. Ins. Co., 164 Vt. 368, 374, 670

  A.2d 827, 830 (1995).  The coverage is intended to provide “the prudent

  motorist with maximum insurance coverage,” Monteith v. Jefferson Ins. Co.,

  159 Vt. 378, 386, 618 A.2d 488, 492 (1992), when involved in an accident

  with a marginally insured (or uninsured) motorist.  Colwell v. Allstate

  Ins. Co., 2003 VT 5, ¶ 10, 175 Vt. 61, 819 A.2d 727.  Section 941 defines

  when a driver is “underinsured” by comparing the tortfeasor’s liability

  limits with the limits of the insured’s UIM coverage.  23 V.S.A. § 941(f).

  If the insured purchased UIM coverage greater than the limits of liability

  in the tortfeasor’s policy, the tortfeasor is “underinsured” within the

  meaning of § 941.  Id.; Colwell, 2003 VT 5, ¶ 8.  This type of “gap

  coverage” “place[s] the insured in the same position as if, at the time of

  the accident, the tortfeasor had liability coverage equal to the insured’s

  UIM coverage.”  Colwell, 2003 VT 5, ¶ 14; see Webb v. U.S. Fid. & Guar.

  Co., 158 Vt. 137, 141, 605 A.2d 1344,1347 (1992) (describing Vermont’s UIM

  statute as filling the gap between the tortfeasor’s liability coverage and

  the insured’s UIM coverage).  

 

       ¶  9.  A policy clause limiting UIM coverage in a manner

  inconsistent with § 941′s central purpose is unenforceable.  Monteith, 159

  Vt. at 385-86, 618 A.2d at 492-93; see Muir v. Hartford Accident & Indem.

  Co., 147 Vt. 590, 593-94, 522 A.2d 236, 238 (1987) (invalidating liability

  payment set-off provision in uninsured motorist policy because it

  conflicted with purpose of uninsured motorist law to ensure coverage as if

  all drivers had insurance).  In Monteith, the Court invalidated the

  insurer’s “antistacking” provision, thereby allowing the insured to add the

  limits of all his UIM policies to determine the extent of the tortfeasor’s

  underinsurance.  159 Vt. at 384, 618 A.2d at 491. The provision at issue

  was irreconcilable with the statutorily mandated coverage because it failed

  to provide ” ‘the insured injured person the same recovery which would have

  been available to him had the tortfeasor been insured to the same extent as

  the injured party.’ “  Id. at 384-85, 618 A.2d at 492 (quoting Connolly v.

  Royal Globe Ins. Co., 455 A.2d 932, 935 (Me. 1983)).  In Muir, the Court

  held unenforceable a provision that allowed the UM insurer to reduce its UM

  obligation to the passenger/insured by liability payments made by the

  insurer and the third-party motorist’s liability carrier.  147 Vt. at

  593-94, 522 A.2d at 238-39.  Key to the Court’s decision in Muir was the

  overriding purpose of § 941: protecting the insured from the misfortune of

  being involved in an accident with a financially irresponsible driver.  Id.

 

       ¶  10.  Applying that principle to the facts of this case, we

  conclude that the provision upon which Allstate relies to limit its UIM

  liability is unenforceable as inconsistent with the purpose of mandatory

  UIM coverage.  Had the tortfeasor been insured to the same extent as

  Feeley, $300,000 in compensation from the tortfeasor’s liability insurer

  would have been available to him.  Cf. Caberto v. Nat’l Union Fire Ins.

  Co., 881 P.2d 526, 531 (Haw.  1994) (explaining that a policy provision

  that reduces the amount of UM proceeds payable to the insured by the amount

  of workers’ compensation benefits he received does not give the insured the

  same amount of damages he would have been entitled to receive had the

  tortfeasor been adequately insured).  No deduction for workers’

  compensation or other disability payments would have been permitted.  Id.

  The UIM policy Allstate furnished thus “undercuts the policy and purpose of

  UM/UIM statutes” and cannot be enforced. Monteith, 159 Vt. at 384, 618 A.2d

  at 492.

       

       ¶  11.  Allstate argues that Feeley “is trying to take advantage of a

  quirk in New York law to get double recovery that is precluded under

  Vermont law.”  Rather than preventing double recovery for Feeley, Allstate

  is in fact seeking to reduce its obligation to its insured under Vermont

  UIM law because it was also the insurer responsible for paying Feeley’s

  workers’ compensation benefits.  If Feeley’s UIM policy had been provided

  by a different company, the weakness of Allstate’s argument on the terms of

  the UIM policy is readily apparent.  The only statutorily authorized offset

  for UIM proceeds is the amount the insured obtains from “any person legally

  responsible for the damage or personal injury.”  23 V.S.A. § 941(e).

  Although § 941(e) does not preclude other offsets, any limit on UIM

  coverage may not reduce the recovery which would have been available to the

  insured had the tortfeasor purchased insurance with the same (or greater)

  limits as the insured.   Monteith, 159 Vt. at 386, 618 A.2d at 492.

  Reducing Feeley’s UIM proceeds by any amounts “payable under any workers

  compensation law” results in lesser recovery than would have been available

  to Feeley if the tortfeasor had been as financially responsible as he.

 

       ¶  12.  Allstate argues that § 941(e) should be read in pari materia

  with § 624(e) of the Vermont Workers’ Compensation Act to ensure that

  Feeley is not overcompensated for his losses.  If the Vermont Workers’

  Compensation Act applied in this case, Allstate would have a point. 

  Section 624(e) allows a workers’ compensation carrier to recover from the

  injured worker any amounts the worker receives from a privately purchased

  insurance policy, but only to prevent “double recovery.”  21 V.S.A. §

  624(e);  Travelers Ins. Co. v. Henry, 2005 VT 68, ¶ 11.  No one disputes,

  however, that New York law governs Feeley’s receipt of workers’

  compensation benefits, and thus § 624(e) of Vermont’s workers’ compensation

  scheme has no application in this case.  Allstate does not present any

  legal authority to support its novel suggestion that the trial court, or

  this Court, may utilize the doctrine of in pari materia when one of the

  statutes at issue is ruled inapplicable to the claim before the court.

  Considering that § 624(e) was inapplicable to Feeley’s receipt of workers’

  compensation benefits, the trial court did not err by refusing to interpret

  § 941(e) in pari materia with § 624(e).

 

       ¶  13.  We note that Allstate’s reliance on § 624(e) demonstrates

  that its interest in this case is not as Feeley’s UIM carrier, but, rather,

  as the workers’ compensation insurer responsible for paying him benefits in

  accordance with New York law.  Only a Vermont workers’ compensation carrier

  may reach an insured’s UIM proceeds under § 624(e), however, and then only

  to the extent that doing so prevents double recovery.  See Henry, 2005 VT

  68, ¶ 11.  In effect, Allstate is trying to avoid the “quirk” in New York

  law, which precludes the offset Allstate seeks, by invoking a Vermont

  statute that has no relevance to Feeley’s UIM claim.  We will not “subvert

  an important rationale underlying [§ 941] by allowing a quirk in New York’s

  law to upset policy underpinnings of Vermont’s law.”  St. Paul Fire &

  Marine Ins. Co. v. Surdam, 156 Vt. 585, 591, 595 A.2d 264, 267 (1991).

       

       ¶  14.  Finally, Allstate argues that the trial court erred by

  overruling a preliminary order it issued by disallowing the offset for

  workers’ compensation benefits.  Allstate asserts that the preliminary

  order, issued in November 2001, definitively established Allstate’s right

  of recoupment from Feeley’s UIM proceeds.  Feeley responds that Allstate

  has misconstrued the order.  We agree.  The November 2001 order expressly

  reserved ruling on the offset issue until the parties had completed

  arbitration.   It explained that the question of “whether the bar against

  double recovery applies to this case” must await the arbitrators’ decision

  on Feeley’s total damages.  Thus, the court did not, as Allstate claims,

  determine that Feeley had to repay a portion of his New York workers’

  compensation benefits from the UIM proceeds due under his policy with

  Allstate. 

 

       Affirmed.     

 

 

 

                                       BY THE COURT:

 

 

 

                                                                              Paul L. Reiber, Chief Justice

 

                                       

John A. Dooley, Associate Justice

    

                                      

Denise R. Johnson, Associate Justice

 

 

Marilyn S. Skoglund, Associate Justice

 

                                      

Ernest W. Gibson III, Associate Justice

(Ret.) Specially Assigned

 

 

 

                                  Footnotes

 

 

FN1.  The amount remaining was $65,000.  That figure results from deducting

  the tortfeasor’s $25,000 payment from the remaining $90,000 (the $300,000

  policy limit minus the $210,000 UIM payment) due under Feeley’s UIM policy.