Butcher v . American Economy Ins. Cv-11-306-PB 6/7/12 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Paul Butcher

v. Case N o . 11-cv-306-PB Opinion N o .

American Economy Insurance Co.

MEMORANDUM AND ORDER

Paul Butcher was injured in an automobile accident while at

work. He received workers’ compensation benefits and later

sought uninsured motorist coverage under his employer’s

liability insurance policy. The carrier, American Economy

Insurance Company (“American”), refused to cover Butcher’s claim

to the extent that he had received compensation for the same

losses under his employer’s workers’ compensation policy.

American based its decision on two coordination of benefit

provisions. The first appears in a section entitled

“Exclusions.” It states that uninsured motorist coverage “does

not apply to . . . [t]he direct or indirect benefit of any

insurer or self-insurer under any workers’ compensation,

disability benefits or similar law.” Doc. N o . 19-3 at 2 . The

second, entitled “Limit of Insurance,” states that American

“will not pay for any element of ‘loss’ if a person is entitled

to receive payment for the same element of ‘loss’ under any

1 workers’ compensation, disability benefits or similar law.”

at 3 .

Butcher has filed a declaratory judgment against American,

and American has filed a third-party complaint against Clarendon

National Insurance Company (“Clarendon”), the insurer that

provided Butcher with workers’ compensation coverage. Butcher’s

principal argument is that the coordination of benefit

provisions are unenforceable. The parties have joined the issue

in cross motions for summary judgment. None of the material

facts are in dispute.

I. ANALYSIS

Butcher argues that the coordination of benefits provisions

are unenforceable because they violate the state’s uninsured

motorist and worker’s compensation statutes. His arguments turn

on the New Hampshire Supreme Court’s decision in Merchants

Mutual Insurance Group v . Orthopedic Professional Association,

which held that New Hampshire’s uninsured motorist statute bars

the enforcement of a policy provision that reduces the amount

payable under an uninsured motorist policy by “[t]he amount paid

and . . . [the] amounts payable . . . under any workmen’s

compensation law . . . .”

4 8 , 654 (1984). Because

the court’s holding in Merchants is controlling, I begin with an

2 analysis of the decision and then apply the decision to the

facts of the present case.

The version of the uninsured motorist statute that was at

issue in Merchants required automobile liability insurers to

provide a specified minimum level of uninsured motorist coverage

and gave insureds the right to obtain additional coverage up to

the amount of liability coverage purchased.1 Id. at 655.

Because the statute did not authorize insurers to reduce

automobile coverage by the amount of benefits received from

another source, the Supreme Court reasoned that the policy

provision under review in Merchants was “an invalid restriction

of the statutory scope of coverage.” Id.

The court bolstered its holding by finding “a compelling

analogy” between its holding and the collateral source rule,

which bars a tortfeasor from reducing a damages award by the

amount of any payments received for the same injuries from

another source. Id. at 656. Like the collateral source rule,

the court reasoned, its holding that an uninsured motorist

carrier could not adopt a policy provision reducing the

uninsured motorist coverage purchased by the insured by the

amount of benefits received from another source was necessary to

prevent “a windfall for uninsured motorist carriers.” Id.

1 In its current form, the statute provides that “the insured’s uninsured motorist coverage shall automatically be equal to the liability coverage elected.”

, I . 3 After construing the uninsured motorist statute, the

Merchants court went on to consider whether a workers’

compensation carrier who provides benefits to an insured has a

lien against amounts payable to the insured under an uninsured

motorist policy. As then-codified, the workers’ compensation

statute authorized a lien in favor of the workers’ compensation

carrier to recover amounts received by the insured from “some

person” who has “legal liability to pay damages.”

at 657

(quoting

)). The court interpreted

the phrase “legal liability to pay damages” as limiting liens to

recoveries based on tort liability. Id. at 657-58.

Accordingly, the court determined that the lien provision did

not apply to payments received by an insured under an uninsured

motorist policy. Id. at 658-59.

The New Hampshire legislature responded to the court’s

decision by amending the workers’ compensation statute to permit

a lien when “[t]he circumstances of the injury create in another

person a legal liability to pay damages in respect thereto, or a

contractual obligation to pay benefits under the uninsured

motorist provision of any motor vehicle insurance policy.”

-A:13, I (emphasis added). In removing the

limitation that the Merchants court read into the statute, the

legislature made it clear that a workers’ compensation carrier

is entitled to a lien against the proceeds of an uninsured

4 motorist policy. Id.; see Rooney v . Fireman’s Fund Ins. Co.,

3 7 , 640 (1994) (“[B]ecause the legislature has now

expressly provided for such a lien, Merchants [ ] cannot be

relied upon as authority for denying a workers’ compensation

carrier the statutory right to assert a lien against an

employee’s uninsured motorist benefits.” (internal citation

omitted)).

Application

The coordination of benefit provisions at issue in this

case differ from the provision under review in Merchants in that

they merely relieve American from its obligation to cover losses

payable under the workers’ compensation statute, whereas the

provision at issue in Merchants also reduced the amount of

uninsured motorist coverage available to the insured by amounts

payable as workers’ compensation. As I explain below, however,

this distinction cannot justify a different result in the

present case.

The statutory construction argument that the court found

persuasive in invalidating the policy provision at issue in

Merchants applies with equal force here. The argument relied on

the fact that the uninsured motorist statute did not expressly

authorize an insurer to reduce coverage for benefits provided by

another sources.

. Although the coordination of

benefits provisions in American’s policy do not work in

5 precisely the same way, they too purport to allow an uninsured

motorist carrier to limit its coverage obligations in a way not

authorized under the uninsured motorist statute. Accordingly,

it follows that the coordination of benefit provisions also

violate the uninsured motorist statute.

The analogy that the Merchants court drew between the

collateral source rule and its holding also supports Butcher’s

argument. As I have noted, the collateral source rule is

designed to prevent a tortfeasor from reaping a windfall when

the insured is entitled to coverage for the same benefits from

another source. To the extent that the collateral source rule

can be applied by analogy to uninsured motorist carriers, it

requires the same result here that the court reached in

Merchants.2

2 In its effort to distinguish the reduction in the uninsured motorist coverage at issue in Merchants and the coordination of benefits provisions in its policy, American also cites the Louisiana Supreme Court’s decision in Travelers Insurance Company v . Joseph,

(La. 1995). In that case, the court upheld an exclusion in an uninsured motorist policy that prevented a workers’ compensation carrier from recovering benefits paid to an insured injured by an uninsured driver.

. The court noted, however, that uninsured motorist carriers could not reduce the mandated amount of coverage by the amount of workers’ compensation benefits.

The Travelers decision lacks the power to persuade because the court failed to explain why the distinction between a reduction in the coverage amount and an exclusion from coverage warrants different results, other than to state in a summary way that public policy is contrary to the former but not the latter. See

At any rate, the Louisiana court’s decision is inapposite to the facts of this case because the New Hampshire Supreme Court and 6 The legislative response to the Merchants decision further

demonstrates the invalidity of the coordination of benefits

provisions. In amending the workers’ compensation statute so as

to reverse the court’s holding in Merchants that the statute

does not give a workers’ compensation carrier a lien against the

proceeds of an uninsured motorist policy, the legislature

specified the way in which benefits must be coordinated between

workers’ compensation and uninsured motorist carriers. The

statute now expressly grants the workers’ compensation carriers

a statutory lien against amounts payable under an uninsured

motorist policy. The legislature thus made clear that a

workers’ compensation carrier’s lien rights take precedence over

the rights of an uninsured motorist carrier when an insured is

entitled to a recovery under both policies. American’s

coordination of benefits provisions purport to limit the

uninsured motorist carrier’s liability at the expense of the

workers’ compensation carrier. If the exclusion is given

effect, it would subvert a legislative scheme that decidedly

favors the workers’ compensation carrier.

American responds by arguing that the legislature intended

to grant the workers’ compensation carriers a lien against

uninsured motorist benefits only when the uninsured motorist

legislature have in fact provided sufficient guideposts that the policy exclusion is invalid under New Hampshire law. 7 policy does not exclude coverage for losses recoverable under

the workers’ compensation statute. To support its position,

American points out that the statute authorizes a lien only when

the uninsured motorist carrier has “a contractual obligation to

pay benefits.”

-A:13. American

argues that it has no contractual obligation to pay benefits

here because the policy expressly relieves it from an obligation

to pay for any losses covered by a workers’ compensation

carrier.

American’s reading of the workers’ compensation statute

would render the lien provision toothless. Any uninsured

motorist carrier with minimal business acumen would follow

American’s lead and exclude coverage of losses covered by the

workers’ compensation statute. Contrary to American’s argument,

the legislature did not intend to permit uninsured motorist

carriers to limit their liability in a manner that effectively

deprives workers’ compensation carriers of their entitlement to

a lien. Instead, the legislature’s use of the phrase

“contractual obligation to pay benefits” appears to be a direct

response to the Merchants court’s interpretation of the previous

statutory lien provision. The court held that the provision

limits liens to recoveries based on tort liability, and that the

uninsured motorist carrier’s obligation to pay benefits arises

out of contract, not tort. Merchants,

. By

8 amending the statute to expressly authorize liens against

benefits payable under an uninsured motorist policy, the

legislature expanded the scope of the lien provision to cover a

specific context where recovery is not based on tort liability.

Accordingly, a workers’ compensation carrier can assert a lien

against uninsured motorist benefits for the same elements of

damages. Coordination of benefits provisions that seek to

prevent it from doing so are unenforceable.3

II. CONCLUSION

For the aforementioned reasons, I grant Butcher and

Clarendon’s joint motion for summary judgment (Doc. N o . 20) and

deny American’s motion for summary judgment (Doc. N o . 1 9 ) . The

clerk shall enter judgment accordingly and close the case.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge June , 2012 c c : Peter M . Solomon, Esq. Andrew D. Dunn, Esq. Merrick Charles Weinstein, Esq.

3 American also argues that the Insurance Commissioner’s approval of its policy in accordance with

further demonstrates the validity of the policy exclusion. It cites no authority, however, for the proposition that the Commissioner’s approval shields the policy from judicial scrutiny. Even if the Commissioner’s approval is entitled to some deference, it is insufficient to overcome the fact that the exclusion in American’s policy is in clear conflict with the New Hampshire Supreme Court’s reasoning in Merchants and the lien provision of the workers’ compensation statute. 9