Section 1722 Held To Preclude Double Recovery Of Third Party And Uim Benefits

After a seemingly long line of decisions beginning with Panichelli v. Liberty Mutual in 1996, Carroll v. Kephart in 1998, Ricks v. Nationwide in 2005, and Tannenbaum v. Nationwide in 2007 where the Collateral Source Rule seemed to win at every turn, on September 23, 2009 the Superior Court limited that trend and reaffirmed the legislative intent underlying Section 1722 of the MVFRL by enforcing the preclusion against double recoveries with a common sense approach.

In Pusl v. Means and G & J Welding and Machine Company, ___A.2d ___, 2009 PA Super 192 (Pa. Super. 2009), the Superior Court affirmed the trial court’s decision to reduce a plaintiff’s $100,000 jury verdict against the tortfeasor by the $75,000 in UIM benefits the plaintiff recovered before trial. In doing so, the Court rejeced the procedural and collateral source arguments advanced by plaintiff, and affirmed the entry of judgment for plaintiff in the sum of only $25,000.

The Pusl case arose from a 2002 car accident. Plaintiff recovered $75,000 from her underinsured motorist carrier prior to the jury trial in the third party action. In the subsequent jury trial, the jury awarded Plaintiff $100,000 against the tortfeasor. The prior UIM settlement was not admitted as evidence at the trial and, therefore, the jury was unaware of the prior payment and could not have taken it into consideration when arriving at a damage award. In post trial motions, defendant successfully sought to mold the verdict with a credit or set-off of the UIM benefits previously received.

Plaintiff appealed based upon the trial court’s decision to allow defendant to amend his New Matter after the verdict, thereby enabling defendant to assert the prior UIM recovery and request the set-off. Plaintiff argued that allowing the set-off of the UIM recovery violated the collateral source rule. The Pennsylvania Association of Justice (formerly PaTLA) and the Pennsylvania Defense Institute filed amicus curiae briefs for their respective positions, which demonstrates the importance of the issue by both plaintiff and defense practitioners and carriers.

After analysis of the civil procedural rules regarding waiver of defenses and post trial relief, the Court ruled that defendant’s failure to assert the UIM settlement and seek a set-off prior to trial did not amount to a waiver, because the “requested relief, i.e., modification of the verdict to preclude double recovery, were simply not available to be raised in pre-trial proceedings.” The Court reasoned that obviously, defendant could not have predicted the amount of the jury award, nor could defendant have “foreseen that Appellant [plaintiff] would be in a position to procure a double recovery…” or otherwise possess a set-off defense before the trial.

The Court’s ruling was premised upon two intertwined public policy considerations: the policy against a person recovering twice for the same injury, and the policy that a tortfeasor should be fully liable for the damages he caused notwithstanding an injured party’s receipt of benefits from a collateral source – the so called Collateral Source Rule. The Court reasoned that Section 1722 of the MVFRL was enacted precisely to serve the former policy and was designed to prevent double recovery of first party benefits, including UIM benefits, in third party tort actions. Recovery of both the $100,000 jury verdict and the $75,000 UIM settlement would result in the prohibited double recovery of first party benefits.

Regarding the latter public policy that a tortfeasor should be fully liable for the damages he caused, the Court, citing Johnson v. Beane, 664 A.2d 96 (1995), recognized prior case precedent holding that “when an injured party is fully compensated for a particular loss by her underinsurance carrier, her right to sue the tortfeasor is extinguished.” Similarly, here, plaintiff’s right to sue the tortfeasor was limited to that amount over the $75,000 amount she already recovered from the UIM carrier, which then possessed the right of subrogation to recover said amount via suit against the tortfeasor. In a footnote, the Court supported its reasoning by noting that the public policy that a tortfeasor pay for the damages caused is unaffected by whether the UIM carrier ultimately pursues subrogation or not.