State Farm Mut. Auto. Ins. Co. v. Nalbone

• Decision Date: 06 July 1989
• Citation: 569 A.2d 71
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff Below, Appellant, v. Brenda NALBONE, Defendant Below, Appellee. . Submitted:
• Court: Supreme Court of Delaware

Page 71

569 A.2d 71

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff Below, Appellant, v. Brenda NALBONE, Defendant Below, Appellee.

Supreme Court of Delaware.

Submitted: July 6, 1989.

Decided: Dec. 28, 1989.

F. Alton Tybout, (argued) and Donald M. Ransom, Esquire, Tybout, Redfearn & Pell, Wilmington, for appellant.

Kevin M. Howard, (argued), Prickett, Jones, Elliott, Kristol & Schnee, Dover, for appellee.

Before CHRISTIE, C.J., HORSEY, MOORE, WALSH and HOLLAND, JJ., constituting the Court en banc.

WALSH, Justice, for the majority.

This appeal arises out of a declaratory judgment action filed in the Superior Court by State Farm Mutual Automobile Insurance Company ("State Farm") to determine its obligation to pay no-fault benefits to its insured, Brenda Nalbone ("Nalbone"), pursuant to 21 Del.C. § 2118. We have accepted certification of the following question: is an injured person entitled to be compensated for net wages lost while she is unable to be actively employed, even though she has received or is receiving reimbursement for such losses pursuant to a wage continuation or disability plan. We conclude that such recovery is not authorized where it appears that the receipt of such employment benefits creates no detriment or loss of entitlement to reimbursement of future losses.

I

The parties have stipulated to the following facts. Nalbone was injured in an automobile accident on November 15, 1986, at which time she was insured under a State Farm policy that extended personal injury protection ("PIP") benefits pursuant to 21 Del.C. § 2118. State Farm concedes that, as a result of the accident, Nalbone is entitled to PIP benefits under its policy. Nalbone has asserted a claim for loss of net income pursuant to 21 Del.C. § 2118(a)(2) a.2. ¹ Nalbone's employer has a wage continuation plan that provides for the payment of part or all of her lost wages. State Farm has paid Nalbone the difference between her normal net weekly earnings and the amount paid by her employer under its wage continuation plan. Nalbone is not required to contribute to her employer's wage continuation plan and her benefits are not accrued; that is, if unused, they cannot be converted into vacation time or cash. Benefits provided to Nalbone are in the form of sick pay. Her employer does not have a right of subrogation.

Nalbone seeks to recover from State Farm, as PIP benefits, the entire amount of her net lost wages without reduction for the wage loss compensation received from her employer. State Farm denies any obligation under 21 Del.C. § 2118 to pay as net lost earnings those amounts that Nalbone has received pursuant to her employer's wage continuation plan.

II

The question before us is essentially one of statutory interpretation since State Farm, like all insurers operating in this State, is required to issue policies that extend PIP benefits coextensively with the requirements of 21 Del.C. § 2118. A policy provision or coverage interpretation that does not meet the minimum requirements of the statute will not receive judicial recognition. Bass v. Horizon Assurance Co., Del.Supr., 562 A.2d 1194 (1989); Frank v. Horizon Assurance Co., Del.Supr., 553 A.2d 1199 (1989). Unfortunately, recourse to the statute itself provides little insight into the legislative purpose concerning the certified question. While the language of section 2118(a)(2)a.2. mandates compensation for the net amount of lost earnings, no guidance is offered as to when earnings may be deemed "lost". ² We thus approach the question from the standpoint of the primary policy considerations underlying the Delaware No-Fault Statute, i.e., is the goal of section 2118, the protection and compensation of persons injured in automobile accidents, advanced by requiring payment for losses already compensated through other sources?

The parties have argued their respective positions in terms of application of the collateral source rule. Nalbone contends that the collateral source rule should be extended to permit recovery for her lost earnings irrespective of whether those losses have been compensated by a third party, her employer. To the contrary, State Farm argues that the collateral source rule finds application only in claims asserted against tortfeasors and their insurance carriers and is irrelevant to insurance claims in which fault is not a consideration.

The collateral source rule was first recognized in Delaware in Yarrington v. Thornburg, Del.Supr., 205 A.2d 1 (1964). The rule finds classic application in an action brought by an injured party against a tortfeasor. Although in Yarrington this Court ruled that the medical payments received by the plaintiff could be set off against claimed damages because the source of the disputed payments was the tortfeasor's insurance carrier, the collateral source rule was approved in the following language:

The collateral source doctrine is predicated upon the theory that a tortfeasor has no interest in, and therefore no right to benefit from, monies received by the injured person from sources unconnected with the defendant. The doctrine, however, does permit the tortfeasor to obtain the advantage of payments made by himself or from a fund created by him; in such an instance the payments come, not from a collateral source, but from the defendant himself.

205 A.2d at 2.

The rationale for the collateral source rule appears to emphasize the deterrent and quasi-punitive functions of tort law. It is considered better that the innocent plaintiff receive a windfall than that the wrongdoing defendant bear less than the full cost of his negligent conduct. Some commentators have argued that even this "pure" application of the collateral source rule is inappropriate in an age when the rationale of the tort law is, or should be, focused more on risk-spreading and providing adequate compensation at the lowest cost. See, e.g., Fleming, The Collateral Source Rule and Loss Allocation in Tort Law, 54 Cal.L.Rev. 1478 (1966); Harper, James & Gray, The Law of Torts §§ 25.19-.23 (2d ed. 1986 & Supp.1989); P. Huber, Liability: The Legal Revolution and Its Consequences 193 (1988). Several states have enacted legislation that limits the extent of double recovery or windfall results. For example, New Jersey law does not permit an insured to recover PIP benefits that duplicate certain other disability payments. See Smith v. Allstate Ins. Co., N.J.Super.Ct. Law Div., 203 N.J.Super. 610, 497 A.2d 602, 605 (1985); Puzio v. New Jersey Mfrs. Ins. Co., Passaic County Ct., 165 N.J.Super. 585, 398 A.2d 934 (1977). Similarly, New York, by statute, has precluded double recovery of lost earnings through receipt of social security disability benefits and PIP benefits. See Ardolino v. City of New York, App.Div., 94 A.D.2d 780, 463 N.Y.S.2d 26 (1983). Although State Farm relies upon these decisions as supportive of the policy argument against double recovery, their force is limited because they represent the implementation of clear legislative restrictions against duplication of PIP benefits.

Delaware has not enacted a direct statutory modification of the collateral source rule. The no-fault statute, 21 Del.C. § 2118(g), limits the collateral source rule by precluding an insured from suing a tortfeasor for damages for which compensation is available under the statute. Somewhat cryptically, the statute limits recovery against the tortfeasor "whether or not ... [the no-fault] benefits are actually recoverable." State Farm contends that this language precludes Nalbone's claim for PIP benefits. Under State Farm's argument, Nalbone is entitled to receive lost wage benefits from her employer; therefore, the benefits of her no-fault policy are "available" but not "actually recoverable." The absence of a legislative history or prior judicial construction renders this argument inconclusive but the reasoning seems at least plausible. One of the policies underlying the no-fault statute is the provision of quick and adequate compensation, but this policy is not compromised by State Farm's interpretation of the statutory language. It is difficult to imagine a situation in which the insured would be precluded from recovering damages from a collateral source, his no-fault insurer, and the tortfeasor. Therefore, the language suggests that to the extent that payments are received from a collateral source, the insured may not recover from the insurer or the tortfeasor.

State Farm also argues that permitting double recovery of PIP benefits will inevitably result in increased insurance costs as insurance carriers seek to recoup such payments through higher rates. While this argument has theoretical appeal, the empirical proof is lacking in this case. State Farm has pointed to no study or data that demonstrates an adverse premium effect in jurisdictions that have extended the collateral source rule indiscriminately to permit duplicate payment of PIP benefits. On the one hand, it is possible that if no-fault insurers are not required to provide compensation for wages not actually lost, the gross amount of losses that insurance companies may expect to bear will decrease and the premiums required to support such losses will be lower. It could thus be argued that limiting the collateral source rule will further the no-fault policy of minimizing rates. To accept this conclusion one would have to indulge the belief, perhaps naively, that insurance carriers will always pass on reduced underwriting costs to policy holders. In the absence of supporting empirical data, we can make no such judgment on this record and thus do not find this argument persuasive.

Three decisions applying Delaware law have spoken to the interaction between no-fault insurance and the collateral source rule. In Dickerson v. Continental Casualty Co., Del.Super., C.A. No. 82C-MR-8, Poppiti, J. (Sept. 1, 1983), the court held that no-fault benefits should not be reduced by the value of payments...