Shifting of risk and recuperating expenses is a large part of the insurance field.   In Smith v. Progressive Specialty Insurance Company, decided last month, a federal judge in Pennsylvania ruled that an insurer is not entitled to an offset when an automobile-accident victim receives Social Security disability benefits for injuries sustained in the accident.

The case arose out of an incident that occurred on February 23, 2012 when the plaintiff, Francine Smith, was struck in a parking lot by an underinsured motorist, John Cameron.  Smith incurred serious injuries and claimed she was unable to work.  She then applied for Social Security Disability benefits.  The Social Security Administration deemed Smith to be totally disabled from employment and awarded her benefits of $1,174 per month.  Smith then reached a settlement with Cameron’s insurance carrier for the $100,000 policy limit.  Smith’s auto insurance policy carrier, Progressive, waived its right to subrogation and consented to settlement.  Thereafter, Smith asserted a UIM claim against Progressive for lost wages due to her disability in the Allegheny County Court of Common Pleas.  Progressive removed the case to the Western District Court of Pennsylvania and moved for partial summary judgment.

Progressive contended that under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFGL), Smith is precluded from recovering UIM benefits for lost wages in the amount of the Social Security disability benefits she received, thus giving them an offset.  The offset provision in the MVFRL precludes double collection of benefits and states that a person entitled to receive benefits under “any program, group contract or other arrangement or payment of benefits…shall be precluded from recovering the amount” in any additional program, group contract or other arrangement for payment of benefits.  Progressive’s view was that the statutory language of “any program, group contract or other arrangement or payment of benefits” includes Social Security disability benefits and that any paid to Smith must then offset any UIM payments by them.

In Tannenbaum v. Nationwide Insurance, the Pennsylvania Supreme Court ruled that income-loss benefits are subject to an offset if they fall within the MVFRL’s contemplation of “any program, group contract or other arrangement or payment of benefits”.  The Superior Court of Pennsylvania in Browne v. Nationwide Mutual Insurance decided that Social Security disability benefits do not qualify as a group/program/arrangement under the MVFRL.  There the court reasoned that the MVFRL was designed to refer only to benefits which are recoverable as first party benefits or subject to subrogation and Social Security disability payments do not fit within either category.  They also stated that the legislature could have specifically named Social Security payments within the MVFRL preclusions but they chose not to.

In this case, the court followed the reasoning of Browne and refused to expand the scope of the preclusions in the MVFRL and denied Progressive’s motion for partial summary judgment.  It emphasizes the importance of cost shifting, subrogation, indemnification, and other ways to offset or alleviate payments for companies.  It also encourages them to be aware of all avenues of funds since not all will be open to offset payments they may have to give.  Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.