Collateral Damage: Heads I Win, Tails You Lose

The Double Recovery § 1722 Forgot

In personal injury cases seeking damages, questions arise about whether a Plaintiff can plead, prove, and recover damages that were already paid for by another source. Normally you would have to worry about the application of the “collateral source rule” that prevents the fact finder from hearing that certain damages were already paid for and allows for the possibility of double payment. But the collateral source rules is not absolute. 75 Pa. C.S. § 1722 prohibits such double recovery, and you can offset any such payments from collateral sources from your end-of-the-day bill. But is it that simple—have the tort reform advocates won a complete victory? Unfortunately, § 1722 and related double recovery principles are not always so simple. Below, we will discuss how the collateral source rule in Pennsylvania applies to cases in general and the differences in how it applies in the automobile context.

Pennsylvania Collateral Source Rule and § 1722

Pennsylvania recognizes the collateral source rule under its common law. The collateral source rule is a plaintiff-friendly rule that allows a plaintiff to collect “the damages caused by the tortfeasor’s misconduct regardless of compensation the victim has received from other sources.” Denardo v. Carneval, 444 A.2d 135, 140 (1982). The rule only excludes evidence of those benefits that were already paid by a collateral source. Consequently, defendants cannot offset claimed damages by a plaintiff’s earlier receipt of benefits from another source paying for the same injuries which are alleged to have been caused by the defendant. Simmons v. Cobb, 906 A.2d 582, 585 (Pa. Super. Ct. 2006).

In the insurance arena, such application of the collateral source rule has the impact of increasing insurance premiums and providing plaintiffs with a windfall that could exceed the value of a loss. So, seeking to limit automobile insurance premiums in Pennsylvania, the Pennsylvania General Assembly enacted the Pennsylvania Motor Vehicle Financial Responsibility Law in 1984, which was then substantially amended in 1990. The text at issue is as follows:

“In any action for damages against a tortfeasor, or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth in this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719 (relating to coordination of benefits) shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719.

75 Pa. C.S. § 1722 (emphasis added). Section 1722 of the MVFRL abrogates the common law collateral source rule. This means in the context of automobile accidents, there is no collateral source rule so there is no double recovery by automobile accident victims. The provision works in tandem with 75 Pa. C.S. § 1720, limiting the right of subrogation for a collateral source’s recovery. Therefore, plaintiffs are prevented from trying to collect damages that they have already received benefits under another policy.

Even still, there are some exceptions to this. Due to federal preemption issues, plaintiffs can “double recover” Medicare, ERISA, and Social Security benefits because of federal preemption. See, e.g., Klinefelter v. Faultersak, 31 F.Supp.2d 457, 459 (E.D. Pa. 1998) (“[42 U.S.C. § 1395y(b)(2)(A)(ii)] preserves Medicare’s right to reimbursement when and if medical benefits are paid by a private insurer. Medicare thus also preempts § 1722.”). Part of this rationale likely stems from the fact that Medicare and other federal programs have rights of reimbursement from insurers and other parties, unlike non-federal programs whose right of subrogation is barred by § 1720. See also In re Avandia Mktg., 685 F.3d 353, 367 (3d. Cir. 2012) (“[Medicare Advantage Organizations] have the same right to recover as the Medicare Trust fund does.”). In other words, by virtue of having to reimburse these types of payments the plaintiff avoids “double recovery” and, in turn, equitable consideration compel the ability to put forth these benefits before a fact finder due to the plaintiff’s reimbursement obligations. 

Workers’ Compensation Liens and Household UM/UIM Policies

Yet we warn of one less obvious, more convoluted, exception wrought by the unforeseen impact of statutory amendments. In 1993, the Pennsylvania General Assembly repealed both § 1720 and § 1722 as it relates to workers’ compensation benefits. So, for liability lawsuits, the plaintiff can plead, prove, and recover medical and wage loss paid for by a workers’ compensation carrier. Additionally, if the plaintiff is injured in a work vehicle insured with uninsured or underinsured motorist (UM/UIM) coverage, the plaintiff can likewise plead, prove, and recover the medical and wage loss expenses paid for by the workers’ compensation carrier.

For household UM/UIM policies, however, the logic behind the framework falls short. In Standish v. American Mfrs. Mut. Ins. Co., 698 A.2d 599, 601 (Pa. Super. 1997), the Pennsylvania Superior Court held that a workers compensation carrier’s subrogation lien does not apply against the proceeds of an uninsured motorist provision of an injured worker’s personal automobile insurance policy because the plaintiff exclusively paid premiums for their insurance and the automobile benefits received were not duplicative with the workers compensation benefits received by the plaintiff. Id. at 601. Citing its prior precedent in Rhodes v. Automotive Ignition Company, 275 A.2d 846 (1971) and 77 P.S. § 671 (concerning an employer’s right of workers’ compensation subrogation), the Court distinguished subrogation against third party tortfeasors and uninsured motorist benefits of a given employee-plaintiff’s personal policy. The Standish Court held that where the uninsured motorist coverage was the employee’s personal automobile insurance policy, which was maintained exclusively by him, any award of benefits pursuant thereto was in the nature of an accident policy for the benefit of the insured rather than a liability policy covering the uninsured motorist. Thus, this personal policy was not subject to the statutory subrogation rights for worker’s compensation liens.  Reliance Insurance Company v. Richmond Machine Co., 309 Pa. Super. 430 (1983); American Red Cross v. W.C.A.B., 745 A.2d 78 (Pa. Cmwlth. 2000).

You might think that because of the lack of workers’ compensation subrogation in the household UM/UIM policy context that a plaintiff cannot “double recover” benefits paid by a workers’ compensation carrier. Despite this policy rationale, the Pennsylvania Superior Court has held otherwise. In Ricks v. Nationwide Ins. Co., 879 A.2d 796 (Pa. Super. 2005). In Ricks, the plaintiff received workers compensation and UM benefits under his employer’s insurance and was also seeking UM benefits from his own policy which was denied coverage by the defendant in the case. Id. at 798. An arbitration panel did not allow the plaintiff to plead, prove, and recover the amount of workers’ compensation benefits he received apparently due to the lack of subrogation per Standish. Id. Nonetheless, despite the sensible subrogation-based rationale, the Superior Court reversed on the basis that the revised section 1722 expressly does not include workers’ compensation benefits under its exception to the collateral source rule and permitted this collateral-source “double recovery.”

Conclusion

The above is just a brief overview of the complexities of the collateral source rules and its implications in Pennsylvania tort and insurance lawsuits. The applications of the collateral source rule in automobile and non-automobile accidents are vastly different in Pennsylvania. These differences implicate the types of evidence pleaded and recovery in personal injury cases. If you or your insured is sued for a personal injury claim in an automobile or non-automobile context, consider retaining Pennsylvania counsel to guide you in your legal process.