Philadelphia Indemnity Ins. Co. v. Morris, No. 97-SC-887-DG

CourtUnited States State Supreme Court (Kentucky)
Writing for the CourtLAMBERT; STEPHENS; STEPHENS
Citation990 S.W.2d 621
Docket NumberNo. 97-SC-887-DG
Decision Date22 April 1999
PartiesPHILADELPHIA INDEMNITY INSURANCE COMPANY, Appellant, v. Stephen W. MORRIS, Medora Sanitation, Inc., Appellees.

Page 621

990 S.W.2d 621
PHILADELPHIA INDEMNITY INSURANCE COMPANY, Appellant,
v.
Stephen W. MORRIS, Medora Sanitation, Inc., Appellees.
No. 97-SC-887-DG.
Supreme Court of Kentucky.
April 22, 1999.

Page 623

Raymond G. Smith, Boehl Stopher & Graves, Louisville, KY, for appellant.

Barry Willett, Weiss Frederick Willett & Haynes, P.S.C., Louisville, KY, Charles H. Zimmerman, Jr., Louisville, KY, Bernard F. Lovely, Jr., Vimont & Wills, PLLC, Lexington, KY, for appellees.

Mark K. Gray, O'Koon, Menefee & Gray, Louisville, KY, Richard Hay, Somerset, KY, for Amicus Curiae, Kentucky Academy of Trial Attorneys.

LAMBERT, Chief Justice.

This case presents questions of first impression in this Commonwealth regarding the relationship between workers' compensation benefits and underinsured motorist coverage. The first issue is whether KRS 342.690(1), the exclusive remedy provision of the Kentucky Workers' Compensation Act, bars an employee from recovering underinsured motorist ("UIM") benefits from his employer's motor vehicle insurance policy. The second issue is whether a provision in the employer's UIM endorsement, which requires that workers' compensation benefits be reduced or "set off" against the UIM policy limits, violates public policy and is thereby unenforceable.

On December 20, 1993, Stephen Morris was struck and injured by a vehicle while he was loading refuse onto a sanitation truck owned by his employer, Medora Sanitation, Inc. ("Medora"). At the time of the injury, the sanitation truck was covered by a liability insurance policy purchased by Medora and issued by Philadelphia Indemnity Insurance Company ("Philadelphia"). Morris suffered traumatic injuries from the accident, including the severance of his right leg and a closed head injury. Since Morris was working within the scope of his employment at the time of the accident, the workers' compensation carrier for Medora made voluntary payments to Morris of approximately

Page 624

$200,000 in medical expenses and wage loss benefits.

On August 30, 1994, Morris filed a civil action in Jefferson Circuit Court against William Tedford, the party who caused Morris' injuries. Tedford's liability insurer, Allstate Insurance Company, subsequently tendered its policy limits of $25,000 to Morris pursuant to a settlement agreement, and the claim against Tedford was dismissed. On April 3, 1995, Morris added Philadelphia as a party defendant and sought a declaration of rights as to whether he was entitled to underinsured motorist (UIM) benefits pursuant to the policy issued to Medora. Morris claimed that he should receive the UIM limits of $100,000 because his damages exceeded by at least that amount the workers' compensation benefits he had received and the policy limit paid by Tedford's insurer.

Morris and Philadelphia filed cross-motions for summary judgment. On June 4, 1996, the Jefferson Circuit Court dismissed Morris' amended complaint and entered an order granting summary judgment to Philadelphia on the narrow issue of the exclusive remedy provision of KRS 342.690(1). The trial court held that the Kentucky Workers' Compensation Act provided Morris with an exclusive remedy and thus barred recovery of UIM benefits under the Philadelphia policy. The Court of Appeals, in a unanimous opinion, reversed and remanded. This Court granted discretionary review, and for the reasons stated hereinafter, we affirm the Court of Appeals' opinion.

I. KRS 342.690(1): THE EXCLUSIVE REMEDY PROVISION OF THE WORKERS' COMPENSATION ACT

The Kentucky Workers' Compensation Act is predicated on the concept of 'no-fault' liability. Each employer subject to the Act agrees to pay both lost wages and medical expenses to an employee injured on the job. In return, each employee subject to the Act relinquishes all common law claims against the employer arising out of a work-related injury. See, e.g., Zurich Insurance Company v. Mitchell, Ky., 712 S.W.2d 340, 341 (1986); General Accident Insurance Company v. Blank, Ky.App., 873 S.W.2d 580, 581 (1993). Under the Act, the employer's liability is exclusive.

The exclusive remedy provision of the Act states in relevant part:

If an employer secures payment of compensation as required by this chapter, the liability of such employer under this chapter shall be exclusive and in place of all other liability of such employer to the employee, his legal representative, ... and anyone otherwise entitled to recover damages from such employer at law .. on account of such injury or death.

KRS 342.690(1) (emphasis added). Philadelphia contends that this provision precludes recovery of UIM benefits from the employer's policy when workers' compensation benefits have been paid. In the Court of Appeals, the statute was interpreted as establishing an exclusive remedy against an employer only when the employer is legally liable for the injuries sustained. It reasoned that since legal liability was upon the third party tortfeasor, Tedford, and not the employer, Medora, that KRS 342.690(1) did not bar Morris from recovering under Medora's UIM coverage. Central to the view of the Court of Appeals was that UIM coverage was not payable as a result of the policy owner's tort liability, but payable by virtue of a contract.

Philadelphia contends that KRS 342.690(1) precludes recovery of UIM benefits by Morris regardless of whether such coverage is based on contract or tort. Philadelphia urges this Court to follow the rationale expressed in Berger v. H.P. Hood, Inc., 416 Mass. 652, 624 N.E.2d 947 (1993), a Massachusetts case in which the court held that the workers' compensation exclusive remedy provision could not be avoided merely by characterizing the claim as contractual. In Berger, the court stated:

Page 625

The plaintiff's UM claim derives from the same incident, a personal injury sustained in the course of employment, which gave rise to the payment of Workers' compensation. Merely characterizing the claim as contractual does not alter the essential nature of this common law claim. Hood, if required to pay UM benefits, still would be paying a worker for an injury sustained in the course of employment.

Id. at 949 (citation omitted). The court then concluded that for liability purposes, the employer and the insurance company were synonymous, stating

Any suit against Fund and First is essentially a suit against Hood, as an owner of the policies. We have determined that suits against Hood are barred by [the exclusivity provision of the Workers' Compensation Act]. Thus, summary judgment in favor of First and Fund on Hood's UM coverage was appropriate.

Id. at 950.

We decline to follow Berger for the reason that the UIM coverage at issue here is not based on Medora's legal liability. Morris' UIM claim was against Philadelphia, the UIM insurance carrier, not against his employer, Medora. Medora's legal liability is unaffected. As stated in Coots v. Allstate Insurance Co.,...

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31 practice notes
  • Norris v. National Union Fire Ins. Co., No. 1-05-3132.
    • United States
    • United States Appellate Court of Illinois
    • 17 Octubre 2006
    ...thus making that extension of the exclusive-remedy statute inapplicable here"); Philadelphia Indemnity Insurance Page 868 Co. v. Morris, 990 S.W.2d 621, 625 (Ky.1999) (exclusive remedy provision did not preclude recovery of uninsured motorist benefits because it was intended only to protect......
  • Nationwide Mut. Ins. Co. v. Hatfield, No. 2001-SC-0969-DG.
    • United States
    • Kentucky Supreme Court
    • 18 Diciembre 2003
    ...an interpretation of policy language is consistent with other Kentucky case law. In Philadelphia Indemnity Insurance Co. v. Morris, Ky., 990 S.W.2d 621 (1999), the issue was whether the exclusive remedy provision of the Workers' Compensation Act barred an employee from recovering underinsur......
  • State Farm Mutual Automobile Insurance Company v. Carlton
    • United States
    • Alabama Court of Civil Appeals
    • 11 Mayo 2001
    ...191 W.Va. 542, 447 S.E.2d 5 (1994). Kentucky appears to be the sole exception to the rule. See Philadelphia Indem. Ins. Co. v. Morris, 990 S.W.2d 621 (Ky.1999). In Alabama, such a claim would probably be denied on grounds unrelated to the interplay between the Workers' Compensation Act and ......
  • Hensley v. State Farm Mut. Auto. Ins. Co., NO. 2013-CA-000006-MR
    • United States
    • Court of Appeals of Kentucky
    • 15 Agosto 2014
    ...of broad UIM coverage, the purpose of which is to provide full recovery for the insured[.]" Philadelphia Indem. Ins. Co. v. Morris, 990 S.W.2d 621, 627 (Ky. 1999). "The reasonable expectation of the average person who purchases UIM coverage is that she will be entitled to UIM benefits if sh......
  • Request a trial to view additional results
31 cases
  • Norris v. National Union Fire Ins. Co., No. 1-05-3132.
    • United States
    • United States Appellate Court of Illinois
    • 17 Octubre 2006
    ...thus making that extension of the exclusive-remedy statute inapplicable here"); Philadelphia Indemnity Insurance Page 868 Co. v. Morris, 990 S.W.2d 621, 625 (Ky.1999) (exclusive remedy provision did not preclude recovery of uninsured motorist benefits because it was intended only to protect......
  • Nationwide Mut. Ins. Co. v. Hatfield, No. 2001-SC-0969-DG.
    • United States
    • Kentucky Supreme Court
    • 18 Diciembre 2003
    ...an interpretation of policy language is consistent with other Kentucky case law. In Philadelphia Indemnity Insurance Co. v. Morris, Ky., 990 S.W.2d 621 (1999), the issue was whether the exclusive remedy provision of the Workers' Compensation Act barred an employee from recovering underinsur......
  • State Farm Mutual Automobile Insurance Company v. Carlton
    • United States
    • Alabama Court of Civil Appeals
    • 11 Mayo 2001
    ...191 W.Va. 542, 447 S.E.2d 5 (1994). Kentucky appears to be the sole exception to the rule. See Philadelphia Indem. Ins. Co. v. Morris, 990 S.W.2d 621 (Ky.1999). In Alabama, such a claim would probably be denied on grounds unrelated to the interplay between the Workers' Compensation Act and ......
  • Hensley v. State Farm Mut. Auto. Ins. Co., NO. 2013-CA-000006-MR
    • United States
    • Court of Appeals of Kentucky
    • 15 Agosto 2014
    ...of broad UIM coverage, the purpose of which is to provide full recovery for the insured[.]" Philadelphia Indem. Ins. Co. v. Morris, 990 S.W.2d 621, 627 (Ky. 1999). "The reasonable expectation of the average person who purchases UIM coverage is that she will be entitled to UIM benefits if sh......
  • Request a trial to view additional results

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