In AAA Mid-Atlantic Ins. Co. v. Ryan, decided on January 21, 2014, the Pennsylvania Supreme Court addressed the issue of whether, under an insurance policy for UIM coverage, the amount of an insured’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 driver/tortfeasor.

In September 2003, the insured/plaintiff was involved in an automobile accident with the underinsured driver/tortfeasor. Suit was filed against the underinsured driver. A separate lawsuit was also filed against the City of Philadelphia and PennDOT based upon defective design of the roadway. PennDOT was dismissed from the suit by agreement. The remaining parties agreed to binding arbitration.

Before arbitration, the underinsured driver/tortfeasor settled with the plaintiffs by tendering her $25,000 liability limits. The case proceeded to arbitration and the arbitrator apportioned liability as follows: underinsured driver/tortfeasor, 50%; plaintiff, 35%; and the City, 15%. The arbitrator awarded the plaintiffs damages in the amount of $500,000, less $175,000 based on the plaintiff’s comparative negligence of 35%, for a net award of $325,000. The City paid the plaintiffs $300,000 and the remaining $25,000 was paid by the underinsured driver’s insurance company. Thus, the plaintiff was paid the full amount of the award.

The plaintiff then attempted to recover from her own carrier for UIM coverage. Relying on its policy language and the fact that the plaintiff had received the full amount of the arbitrator’s award, the UIM carrier denied coverage. The plaintiff contended that the only amount that the UIM carrier could offset was the amount of the underinsured driver’s coverage, which was $25,000.

The case made its way to the Pennsylvania Supreme Court, which ultimately held that the “limit of liability” clause in the UIM policy, which provided that one was not entitled to receive duplicate payments for the same elements of loss, did not violate the public policy of affording compensation to parties injured by underinsured drivers since the injured party in this case was fully compensated for her injuries and received the entire amount of damages to which she was entitled. In addition, the court, in reaching its decision, relied heavily on the fundamental rule of damages that a person injured by the tortious act of another is entitled to “but one satisfaction.” In other words, the plaintiff was not entitled to recover twice for the same injury.

What It Means to You

Based upon this decision, it is now clear that policy language limiting an insured to but one recovery and including payments made by all tortfeasors, not just the underinsured driver, are not contrary to public policy and, therefore, are enforceable. It also is clear that when such language is present, payments made by all tortfeasors may be considered in determining whether an insured actually has a claim for underinsured benefits.