The United States District Court for the Middle District of Pennsylvania ruled that an underinsured motorists carrier was required to compensate its insured who was injured by an underinsured co-employee in Nationwide Ins. Co. v. Chiao, No. CIV. 4:CV-04CV2154, 2005 WL 1540234 (M.D. Pa. July 1, 2005).
Sharon Chiao was riding with her co-worker, Janet Wilkinson, from an employer-sponsored meeting when they were involved in an accident. Chiao suffered serious injuries and received Wilkinson's auto insurance policy limits of $15,000. She also received workers compensation benefits. Chiao was insured herself under an auto policy with underinsured motorists (UIM) coverage issued by Nationwide. She filed a claim with Nationwide for UIM benefits, but Nationwide filed an action seeking a declaratory judgment that Chiao was not due payment by law.
The district court stated, “The question before the Court is a succinct and unresolved question of Pennsylvania law: whether an automobile insurer must provide coverage to an insured that has purchased supplemental UIM insurance when the insured was injured solely by a co-employee's negligence.”
Looking at the plain meaning of the UIM policy, the court noted that the situation presented in this case was not contained within the policy's list of exclusions. Nationwide contended that not all occasions in which coverage would not apply could be contemplated and included on the list. When pressed further by the court, though, Nationwide could not provide any other circumstances that might be excluded other than the one at issue.
Since the issue was not addressed in the policy, the court turned to public policy underlying Pennsylvania 's Motor Vehicle Financial Responsibility Law (MVFRL) and Workers Compensation Act (WCA). The court said that Pennsylvania courts have held that the MVFRL “does not preclude the right of insureds to seek payment from both workers' compensation and automobile insurance policies.”
The court explained that Pennsylvania courts have found the purpose of UIM coverage is to protect an insured “from other drivers whose liability insurance purchasing decisions are beyond one's control.” The court pointed out that Chiao had purchased the UIM coverage for just such an instance and that she had not been “adequately compensated following the incident due to circumstances beyond her control.”
Nationwide alleged that the public policy behind the MVFRL was cost-containment—that the law was adopted to control the rising cost of auto insurance. The court, however, said that, though that may have been the reasoning for adopting the law, Nationwide did not show any evidence that paying this claim would have increased insurance costs. The insured paid premiums for the coverage, so not paying the claim, the court said, could possibly provide a windfall to Nationwide.
While the WCA provides co-employee immunity, Pennsylvania courts have explained the purpose of the immunity and employer exclusivity provisions is to allow for an efficient and quick remedy of workers compensation but not that the employee “has given up the right to seek redress from an unrelated third party.” Here, the court called Nationwide an “unrelated third party” and deemed it not protected by the WCA's immunity provisions. Similarly, the court determined that Nationwide had no protection under the MVFRL.
The court concluded, “The relevant precedent from the Pennsylvania courts overwhelmingly indicates to us that the Pennsylvania Supreme Court would determine that the policy behind underinsured motorists insurance…requires insurers to compensate their customers when injured by an underinsured co-employee.”