Travelers Companies v. Liberty Mut. Ins. Co.

• Decision Date: 09 November 1995
• Docket Number: No. 94-579,94-579
• Citation: 164 Vt. 368,670 A.2d 827
• Parties: THE TRAVELERS COMPANIES v. LIBERTY MUTUAL INSURANCE COMPANY, Gary Cole, d/b/a Cole Turf Company and Gary Cole, Individually.
• Court: Vermont Supreme Court

Page 827

670 A.2d 827

164 Vt. 368

THE TRAVELERS COMPANIES v. LIBERTY MUTUAL INSURANCE COMPANY, Gary Cole, d/b/a Cole Turf

Company and Gary Cole, Individually.

No. 94-579.

Supreme Court of Vermont.

Nov. 9, 1995.

John J. Boylan, III, of Boylan & Bowen, Springfield, for plaintiff-appellant.

Mark H. Kolter of Darby Laundon Stearns & Thorndike, Stowe, for defendants-appellees.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

ALLEN, Chief Justice.

Plaintiff workers' compensation insurer sought a declaratory judgment establishing its right to reimbursement for compensation benefits paid to defendant Gary Cole after he received underinsured motorist benefits from his employer's liability carrier. The Lamoille Superior Court granted Cole's motion for summary judgment. We reverse.

Gary Cole was seriously injured in a motor vehicle collision in Morrisville while in the course of his employment with the Cole Turf Company, his own sod farming business. The accident was caused solely by the negligence of an underinsured motorist. Because Cole's injuries arose out of and in the course of his employment, plaintiff, which provided workers' compensation insurance for Cole Turf Company, paid various workers' compensation benefits to and on behalf of Cole.

At the time of the accident, Cole was also covered by a personal automobile insurance policy he had purchased from Agway Insurance Company, which had $250,000 of underinsured motorist (UIM) coverage. Cole's business had an automobile policy issued by Liberty Mutual Insurance Company, which provided UIM coverage of $500,000. The tortfeasor's automobile insurance policy provided $100,000 of liability coverage. Stacking the two underinsured motorist policies provided total available UIM coverage of $750,000, leaving the amount of potential underinsurance liability in this case at $650,000.

Plaintiff consented to Cole's settlement with tortfeasor's carrier for its $100,000 policy limit and was reimbursed $50,000 for workers' compensation benefits paid pursuant to an agreement between plaintiff and Cole. In that agreement, plaintiff reserved the right to claim reimbursement for further compensation benefits paid out of any recovery Cole might obtain from his employer's UIM coverage.

Plaintiff's workers' compensation payments to Cole exceeded the initial $50,000 from the tortfeasor's policy by $126,500. Cole received $147,000 of UIM benefits from his personal UIM policy with Agway and $160,000 from his employer's policy with Liberty Mutual, resulting in total liability policy and UIM proceeds of $357,000. Plaintiff seeks reimbursement of $126,500 out of the $160,000 recovery from Liberty Mutual.

After plaintiff brought a declaratory judgment action seeking payment of this amount, the parties stipulated to the facts, agreed to an escrow of UIM proceeds, and filed cross-motions for summary judgment. The sole issue at trial and here on appeal is whether the UIM proceeds received from the business's policy are available to reimburse plaintiff for the workers' compensation benefits it paid to Cole.

The statute at issue is 21 V.S.A. § 624, which states in relevant part:

(a) Where the injury for which compensation is payable under the provisions of this chapter was caused under circumstances creating a legal liability to pay the resulting damages in some person other than the employer, the acceptance of compensation benefits or the commencement of proceedings to enforce compensation payments shall not act as an election of remedies, but the injured employee or the employee's personal representative may also proceed to enforce the liability of such third party for damages in accordance with the provisions of this section....

....

(e) In an action to enforce the liability of a third party, the injured employee may recover any amount which the employee or the employee's personal representative would be entitled to recover in a civil action. Any recovery against the third party for damages resulting from personal injuries or death only, after deducting expenses of recovery, shall first reimburse the employer or its workers' compensation insurance carrier for any amounts paid or payable under this chapter to date of recovery and the balance shall forthwith be paid to the employee ... and shall be treated as an advance payment by the employer on account of any future payment of compensation benefits.

(Emphasis added.)

Noting that this Court has not yet decided the question, the trial court ruled that UIM benefits from the employer's liability carrier are not subject to a lien in plaintiff's favor under § 624(e), principally because they are first-party, not third-party, obligations. The court noted that this was essentially the ruling in two earlier superior court cases raising substantially the same question and was, as Cole had argued, the decision in a majority of precedents from other jurisdictions that had considered the question. This appeal followed.

We reverse because, on its face, the Vermont statute requires a contrary result. First, it is important to state what this case is not about. This case is not about the legislative policies underlying § 624. The statute establishes the right of a workers' compensation carrier to be reimbursed for payments to an insured employee who obtains personal damages for injury from a third party. The economic and social considerations underlying the legislative choice to favor the compensation carrier in this manner are concerns for the Legislature, not this Court. By requiring reimbursement of workers' compensation carriers, the statute thereby operates to lower the cost of workers' compensation insurance. Nevertheless, because policymaking is the province of the Legislature, our task is to construe the statute with the aid of the usual rules of construction.

Cole first argues that the employer's UIM carrier was not a "third party" within the meaning of § 624, relying both on the text of the statute and on cases from other jurisdictions which hold that the UM/UIM carrier does not fall within particular definitions of third parties. This is a common theme in the "majority rule" cases. Typical is Rhodes v. Automotive Ignition Co., 218 Pa.Super. 281, 275 A.2d 846 (1971), where the court held that the workers' compensation carrier should not have been reimbursed out of the deceased employee's UM policy award, because the UM carrier was not a third party. Id. 275 A.2d at 848. The court relied, however, on a state statute providing as follows:

"Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe[e], his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer...."

Id. (quoting P.L. 736 § 319 (1915), as amended, 77 P.S. § 671 (1970) (current version at Pa.Stat.Ann. tit. 77, § 671 (1992))). Under this statute, the third party was the uninsured motorist who struck and killed plaintiff's decedent. This definition contrasts sharply with the concept of third person in § 624(a), which permits the employee and the workers' compensation carrier to recover where a legal liability to pay damages is created in "some person other than the employer." Later references to "third party" in § 624 relate back to the phrase "some person other than the employer," as there is nothing in the text or context of the section that would suggest a different definition.

In sum, it is clear that, within § 624, "third party" means a party who is not (1) the workers' compensation carrier, (2) the injured worker, or (3) the employer, notwithstanding that in many other contexts an agreement between an insurer and an insured would be described as one between first and second parties, with the phrase "third party" referring to one who was a stranger to the contract. Thus, we hold that a workers' compensation insurer who has paid out benefits is entitled to reimbursement from UM/UIM payments made by an employer's liability carrier. This holding is consistent with St. Paul Fire & Marine Insurance Co. v. Surdam, 156 Vt. 585, 590, 595 A.2d 264, 266 (1991), where we held:

When a third party is found responsible in a personal injury action for damages suffered by the worker, the worker is not permitted double recovery from both the insurer and third party for the same injury. Rather, the law evens out the consequences by permitting the carrier to recoup the benefits it paid the worker.

Cole also argues that the UIM payments were not "damages" within the...