May 5, 2010

TO THE COMPANIES IN INTEREST:

Re: Tannenbaum v. Nationwide Insurance Company, 100 MAP 2007 (April 28, 2010)

PENNSYLVANIA SUPREME COURT CASE HOLDING THAT UNDER §1722 OF THE PENNSYLVANIA MOTOR VEHICLE LAW A PLAINTIFF IS PRECLUDED FROM RECOVERING BENEFITS RECEIVED FROM A DISABILITY PLAN

On April 28, 2010, in a case of first impression in the Pennsylvania Supreme Court, the Court handed down its long overdue decision in the case of Tannenbaum v. Nationwide, No. 100 MAP 2007 (Pa. 2010). Oral argument in the matter was held over two years ago, on April 16, 2008. In Tannenbaum, the Court held that under §1722 of the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), a plaintiff is precluded from recovering as damages any medical bills and income loss that were already paid by a group/program/arrangement, including privately obtained disability benefits.

Tannenbaum involved a doctor who was injured in a motor vehicle accident, allegedly rendering him permanently disabled from his previous hospital employment. Following the accident, he received social security disability benefits, along with disability benefits from a group plan offered by his former employer-hospital, and additional benefits under two personal disability policies.

The doctor commenced a civil action against the driver of a truck involved in the accident and the truck driver’s employer. The third-party action settled. Subsequently, he sought to recover benefits under the underinsured motorist provision of his Nationwide insurance policy*. Nationwide argued that it was entitled to offset the disability benefits plaintiff received under his group plan and personal disability policies.

In support of its position, Nationwide cited §1722 of the MVFRL, which provides:

In any action for damages against a tortfeasor, or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth in this subchapter, or workers' compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719 (relating to coordination of benefits) shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers' compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719.

Nationwide argued that §1722 required an offset favorable to UM/UIM insurers for monies recovered by the insured as first-party benefits and/or which had historically been subject to subrogation. Nationwide also cited §1720 which curtails subrogation relative to such funds, arguing that because subrogation was no longer permissible, an offset was necessary to prevent a double recovery.

The Plaintiff countered that recovery of benefits for which he paid did not represent a double recovery, and such benefits were not entitled to the §1722 offset. In support of his position, plaintiff relied upon the Supreme Court decision in Panichelli v. Liberty Mut. Ins. Group, 543 Pa. 114, 669 A.2d 930(1996) which held that sick pay and Social Security disability benefits received by a policyholder could not be deducted by an insurer under the first-party benefits provision of the MVFRL contained in §1712(2). The Court in Panichelli reasoned that, in light of the insured’s contribution to payment for these benefits, they were considered, “in excess of, and not in duplication of, the income loss benefits payable under §1712(2).” Panichelli, 543 Pa. at 118, 669 A.2d at 932.

In an opinion authored by Justice Saylor, the Supreme Court first determined that the plaintiff’s group plan and personal disability policies are group/program/arrangement vehicles for payment of benefits within the meaning of §1722. The Court held that §1722 does not apply only to medical benefits, but extends to income loss benefits as well. Once that determination was made, the Supreme Court made the only logical conclusion, that these benefits are subject to the specified statutory offset. The Court confirmed that the MVFRL was designed to eliminate the collateral source rule in auto cases, thus preventing the plaintiff from receiving a double recovery with respect to income loss.

As such, the Supreme Court held that §1722 of Pennsylvania's Motor Vehicle Financial Responsibility Law (MVFRL) precluded the plaintiff from pleading, proving and recovering as damages any items of income loss otherwise paid by the disability insurers. Therefore, Nationwide was entitled to an off-set for the benefits already received by the plaintiff.

It is important to note, that the Supreme Court limited its decision to those group/program/arrangement benefits, including disability benefits purchased, in whole or in part, by the insured so long as those benefits are not subject to subrogation. Therefore, in this author’s opinion, ERISA based benefits and benefits provided by an HMO, are still admissible and recoverable.

Madame Justice Todd filed a dissenting opinion in which Mr. Justice Baer joined.

Should you have any questions about the above, please do not hesitate to contact Beth Carter at (215) 665-3311, carter@bbs-law.com.

Very truly yours,

Beth A. Carter

*Although the Tannenbaum opinion deals with a claim being presented against a UM/UIM carrier, the rationale of the opinion extends to third party tort actions as well as the basis of the opinion revolves around 75 Pa.C.S.A. §1722, which specifically applies “in any action for damages against a tortfeasor.

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