Exclusion of Coverage by Auto Policy to Extent Workers Comp Benefits Payable
In Newbury v. State Farm Fire & Cas. Ins. Co. of Bloomington, Ill., 2008 WL 1904397
( Mont. ), the insured, Newbury, who was injured in a work-related accident, brought an action against his automobile insurer, State Farm. Newbury sought to have policy provisions that excluded coverage to the extent workers compensation benefits were payable declared void.
Newbury, who had worked for the Montana Highway Maintenance Department, was injured while plowing a stretch of highway. He had come upon a vehicle in the ditch, and, as he was attempting to assist the driver of the vehicle, the driver struck him with her car as she backed out of the ditch and fled the scene.
Newbury filed a claim for workers comp insurance benefits, and the State Workers Compensation Insurance Fund (State Fund) paid medical benefits to him. Newbury also had two automobile insurance policies with State Farm, each of which provided med pay coverage of $5,000. The policies provided that medical expenses were payable to the insured for bodily injury sustained “through being struck as a pedestrian by a motor vehicle or trailer.” The policies also stated that there was no coverage to the extent workers comp benefits were required to be payable.
Newbury submitted a claim seeking payment of the full $10,000 in medical benefits from his State Farm policies. State Farm paid the remaining medical expenses not paid by the State Fund, and after the payments by the State Fund and State Farm there were no balances owed to Newbury's medical providers for services rendered. For all amounts paid by the State Fund, State Farm denied payment of medical benefits pursuant to the provision in the policies offsetting payments of benefits made by the State Fund.
Newbury filed a complaint for declaratory relief, seeking to have the workers comp provision in both policies declared void as against public policy, and to order that State Farm pay the outstanding medical payment benefits. Newbury also sought the costs of suit and attorney fees.
The parties submitted cross-motions for summary judgment, and the district court granted State Farm's motion and denied Newbury's. The court determined that the language of the workers comp provisions in Newbury's State Farm policies was not ambiguous and, because the policies clearly demonstrated an intent to exclude coverage, Newbury's expectations did not meet the requirements of the reasonable expectation doctrine.
The court also determined that because the premiums charged and collected by State Farm were for coverage of an insured's medical expenses – except to the extent that workers comp benefits are required to be payable – the exclusion did not negate coverage for which a premium had been paid. Consequently, the workers comp provision did not violate Montana public policy and was enforceable. The court further concluded that Newbury had not incurred any medical expenses that had not been paid, so he was not entitled to additional medical payment coverage.
Newbury appealed, and the Supreme Court of Montana affirmed. The court explained that the phrase “required to be payable” was not ambiguous in the policy excluding coverage “to the extent workers' compensation benefits are required to be payable.” Because a consumer with average intelligence, not trained in law or insurance, would find only one interpretation for this language, the court determined that State Farm was only obligated to pay the difference between total medical expenses incurred and the amount “required to be payable” by the workers comp carrier. In addition, State Farm's policy was not rendered ambiguous by any conflict between the limits of coverage on the dec page and the policy's exclusion of coverage “to the extent workers' compensation benefits are required to be payable,” as the dec page provided that coverages were “as defined in policy.” And, the policy had to be taken as a whole to determine whether ambiguity existed.
Further, Newbury's expectation that State Farm's policy would cover the medical expenses incurred as a result of the accident up to the amount of the policy limit was unreasonable to the extent that he expected to receive funds in excess of his medical expenses. Thus, the provision excluding coverage to the extent workers comp benefits were payable did not violate public policy, under the reasonable expectations doctrine, as State Farm paid the remaining amount after the workers comp fund payment, such that Newbury received full payment for his medical expenses.
The court noted that parties to an insurance contract may include provisions that exclude coverage without violating public policy if the exclusion applies to optional, rather than mandatory, coverage. And, because med pay coverage was not mandatory in Montana , its presence in a motor vehicle insurance contract was at the sole discretion of the parties to the contract.