Important Pennsylvania UM/UIM Decision: Smith v. Rohrbaugh Reverses Pusl v. Means

A recent en banc decision of the Superior Court has further confused the interplay between underinsured motorist ("UIM") claims and third party claims brought by the same claimant for damages stemming from the same accident. In Pusl v. Means, 982 A.2d 550 (Pa. Super. 2009), a panel of the Superior Court addressed the situation where an UIM settlement is reached before trial of the third party case arising from the same accident. Pusl held that the UIM carrier has subrogation rights to any recovery the claimant obtains from a jury verdict entered against the third party. If the UIM carrier has waived its right of subrogation, then the third party was entitled to a credit, or setoff, equal to the amount of the UIM recovery. Thus the verdict was reduced by the amount of the UIM payment, preventing the claimant from making a double recovery. Of course, if the UIM carrier had not waived subrogation, then the third party would not be entitled to have the verdict molded, because the UIM carrier would be repaid out of the jury award so the claimant would not achieve a double recovery.

In Smith, an en banc panel of the Superior Court reversed the section of the Pusl decision that awarded the third party defendant a setoff equal to the prior UIM payment. Smith noted that the Pusl court had relied on § 1722 of the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1722, for the proposition that the claimant should not be permitted a double recovery. However, § 1722 applies only to "first party benefits" as that phrase is defined in the MVFRL. Uninsured ("UM") and UIM benefits are not included within the definition of "first party benefits" in the MVFRL. Although UM and UIM coverage are colloquially referred to as first party benefits because they are benefits paid to the owner of the insurance policy, under the MVFRL there is a specific definition of first party benefits, which include such benefits as medical expenses and wage loss payments but does not include uninsured or underinsured motorist coverages. Thus, Smith held that the third party defendant should not be given a credit for the UIM payment.

However, the Smith decision does not resolve the question of whether a UIM carrier has a dollar-for-dollar right of subrogation against recovery from a third party verdict. In Smith, the UIM carrier had waived its right of subrogation. The Smith court said that the waiver of subrogation was merely a matter of contract and if the UIM carrier agreed to waive a viable subrogation claim, it was within its rights to do so. However, the Smith court did not go so far as to say that the UIM carrier does not have a right of subrogation against the third party recovery. Indeed, by addressing the subrogation claim in the way if did, the Court seems to imply that the UIM carrier does indeed have the right of subrogation against the third party recovery. Thus, as was the case before the Smith decision, it seems wise for a UIM carrier to continue to preserve its rights of subrogation if it is settling a claim before trial of the third party claim arising from the same accident.