The Pennsylvania Superior Court recently issued a significant opinion concerning the applicability of UIM credits in third-party tort claims. In Smith v. Rohrbaugh, 54 A.3d 892 (Pa. Super. 2012) the Superior Court overturned its own precedent and held that third-party defendants in motor vehicle accidents are not entitled to reduce their liability by the amount of payments made under underinsured motorist policies. This decision is important for plaintiffs injured in motor vehicle accidents in Pennsylvania because it potentially increases the amount of insurance coverage available for recovery.
The Superior Court in Rohrbaugh was asked to decide whether under Pennsylvania law, plaintiffs who settle UIM claims must give third-party defendants a “credit” for the amount of that settlement. The following hypothetical example highlights how this scenario would typically play out: A plaintiff is injured in a car accident caused by an underinsured defendant. The plaintiff sues the defendant, but before receiving a verdict settles with their own underinsured motorist carrier. Is the plaintiff’s subsequent recovery against the defendant reduced by the amount of the UIM settlement? Prior to Rohrbaugh, the answer was YES. The Superior Court had previously held in Pusl v. Means, 982 A.2d 550 (Pa. Super. 2009) that any judgment against a third-party defendant must be reduced by the amount of payment made under a UIM policy. The basis for this decision was § 1722 of Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”) which prevents double recoveries involving “first party” benefits. The Pusl court considered UIM coverage a “first-party” benefit.
In Rohrbaugh, the Superior Court explicitly overturned its decision in Pusl and held that § 1722 does not require a third-party claim to be reduced by the amount of a UIM recovery. The Rohrbaugh Court held that the Pusl incorrectly found that UIM coverage was a “first-party” benefit. The Court noted that although UIM benefits are sometimes “colloquially” referred to as “first-party benefits,” the MVFRL specifically designated UIM coverage as a separate available coverage. According to the Court “by placing first-party benefits and UIM coverage in different subchapters [of the MVFRL], the legislature was clearly designating the two as distinct entities.” Thus, § 1722 “was not designed or intended to require the offset of UIM benefits from an award against a tortfeasor.”
The result of the Rohrbaugh Court’s decision should have a significant impact on the litigation of motor vehicle accident claims in Pennsylvania. In the wake of Pusl, liability insurance carriers had an incentive to delay paying on a legitimate third-party claim until after a plaintiff settled with their UIM carrier in the hopes of receiving a credit. This sort of insurance gamesmanship is no longer available. Just as importantly, theRohrbaugh decision makes more insurance coverage available to injured plaintiffs.