Progressive Casualty Insurance v. Estate of Keenan

Reiber, C.J. ¶ 1 In this appeal, we revisit the meaning of the term “double recovery” as used in 21 V.S.A. § 624(e) and interpreted by the Court in Travelers Insurance Co. v. Henry, 2005 VT 68, 178 Vt. 287, 882 A.2d 1133. Specifically, we address the circumstances under which an underinsured/uninsured motorist (UIM) award must be allocated between economic and non-economic damages and, consequently, when a workers’ compensation insurer has the right to reimbursement from the economic damages portion of such an award. As discussed below, we hold that, consistent with Henry, all first-party awards must be allocated between economic and noneconomic damages. To prevent a double recovery, the workers’ compensation insurer has the right to reimbursement out of the economic damages portion of the award, and the employee retains the portion of the award that represents noneconomic damages. Because no such allocation 300 occurred in this case, we reverse and remand for further proceedings. ¶ 2 The relevant facts are undisputed. In June 2003, Ryan Monroe and five other employees of Four Seasons Roofing were seriously injured in an automobile accident caused by another driver. Because the accident occurred during the course of their employment, the employees received benefits from their employer’s workers’ compensation insurer, York Insurance Company of Maine, Inc. The employees also recovered $50,000 in damages from the insurance company of the individual who caused the accident. By agreement, one-third of this award was allocated to York as partial reimbursement for the workers’ compensation benefits paid, and the remaining portion was divided equally among the six employees. ¶ 3 Four Seasons Roofing also held a UIM policy with Progressive Casualty Insurance Company under which the six employees were first-party insureds. Progressive paid the limits of its policy ($450,000) into the trial court, and it filed the instant interpleader action to determine the priority of claims against this fund. York and the six employees disagreed over the distribution of the fund. Following mediation, the employees agreed to an equal distribution ($75,000 each) among themselves, leaving York’s claims for reimbursement unresolved. Eventually, York settled with each employee except Mr. Monroe. ¶ 4 In late 2005 and early 2006, the parties filed cross-motions for summary judgment regarding York’s right to reimbursement. Each interpreted 21 V.S.A. § 624(e) and our decision in Henry differently. Mr. Monroe argued that he was entitled to first-dollar priority on the UIM proceeds until he was “made whole” for his noneconomic losses. Until this point was reached, he asserted, there could be no “double recovery” and, consequently, no obligation to reimburse the workers’ compensation insurer under § 624(e). Because it was undisputed that his noneconomic damages greatly exceeded his share of the UIM award, he maintained that no reimbursement was required. ¶ 5 For its part, York asserted that Mr. Monroe could not allocate all of his UIM award to noneconomic damages and thereby defeat its right to reimbursement. Rather, as an initial matter, the award must be apportioned fairly between economic and noneconomic damages, with York’s statutory right to reimbursement attaching to the economic damages portion. The supe 301 rior court agreed with Mr. Monroe’s interpretation of § 624(e), and it granted summary judgment in his favor. York appeals. ¶ 6 This case presents a legal question, which we review de novo. Charbonneau v. Gorczyk, 2003 VT 105, ¶ 2, 176 Vt. 140, 838 A.2d 117. As discussed below, we agree with York that the trial court’s construction of § 624(e) is inconsistent with our decision in Henry. ¶ 7 In Henry, we recognized that as a general rule under our statute a workers’ compensation insurer is entitled to “first-dollar reimbursement” from an injured employee’s recovery of damages from a third party, regardless of whether this recovery represents economic or noneconomic damages and regardless of whether the employee has been “made whole.” 2005 VT 68, ¶¶ 6, 8; see also 21 V.S.A. § 624(e) (employer or workers’ compensation insurer entitled to first-dollar reimbursement from “[a]ny recovery” made by injured employee against a third party for damages, after deducting expenses of recovery, with exception discussed below). ¶ 8 In 1999, however, the Legislature amended § 624(e) to afford special treatment to an employee’s recovery of “first party” payments or benefits. Specifically, the amendment stated: “Reimbursement required under this subsection, except to prevent double recovery, shall not reduce the employee’s recovery of any benefit or payment provided by a plan or policy that was privately purchased by the injured employee, including uninsured-under insured motorist coverage, or any other first party insurance payments or benefits.” 21 V.S.A. § 624(e). We concluded that this language changed the general rule cited above, thereby protecting an employee’s recovery of first-party insurance payments or other benefits from the insurer’s right to first-dollar reimbursement. Henry, 2005 VT 68, ¶¶ 18-19. We did not hold, however, that the injured employee was therefore entitled to exempt such recoveries from the reimbursement obligation, nor did we conclude that an employee was entitled to be “made whole” before a double recovery could occur. See Henry, 2005 VT 68, ¶¶ 23-24. ¶ 9 Rather, as stated above, we held that to prevent a “double recovery” within the meaning of 21 V.S.A. § 624(e), first-party insurance awards must be apportioned between economic and noneconomic damages, with the insurer having a right to reimbursement out of the economic damages portion. Id.; see 302 also Travelers Ins. Co. v. Henry, 470 F.3d 56, 62 (2d Cir. 2006) (recognizing that Vermont Supreme Court in Henry adopted a “two-step approach” to reimbursement, which requires a trial court (or settling parties) to apportion any recovery under a UIM policy between economic and noneconomic damages). Double recovery occurs when the employee recovers economic damages from two sources, including first-party sources, and thus, the insurer has a right to reimbursement out of the portion of the first-party award that is equal to the proportion of the injured employee’s total economic loss to the total damages sustained. See Henry, 2005 VT 68, ¶¶ 23-24. ¶ 10 We specifically recognized the possibility that an employee and UIM carrier could attempt to structure a settlement agreement that would prevent the insurer from exercising its right to reimbursement. Id. ¶ 25. For this reason, we held that, in addition to other safeguards, the insurer has a right to seek judicial review of settlement agreements to ensure that the apportionment of damages was fair and that it fairly reflected the injured party’s actual economic and noneconomic losses. Id. To be fair and reasonable within the meaning of Henry, a UIM award must be apportioned according to the same ratio that an employee’s overall economic damages have to his overall noneconomic damages. ¶ 11 Allocating an entire UIM award to noneconomic damages is inconsistent with this approach. Such an allocation does not fairly reflect the injured party’s actual economic and noneconomic losses, and it is not fair or reasonable from the perspective of the workers’ compensation insurer. While an employee certainly has a persuasive claim that he or she should be “made whole” first out of such awards, so too does the workers’ compensation insurer, which has been paying workers’ compensation benefits despite the fact that someone other than the employer bears the “legal liability” for the damages resulting from the employee’s injury. See 21 V.S.A. § 624(a) (reimbursement statute applies only in cases where injury “was caused under circumstances creating a legal liability to pay the resulting damages in some person other than the employer”). In cases where an employee has incurred significant noneconomic damages, the employee will also likely have incurred significant economic damages, and it is likely that, taken together, both types of damages will greatly exceed a UIM award. 303 ¶ 12 Our approach in Henry recognizes these competing interests and attempts to balance them. It gives both the insurer and the employee a right to a portion of the first-party proceeds, and holds in essence that the “first dollar” of such awards should be shared between them. Because a fair apportionment between economic and noneconomic damages is required under Henry and did not occur in this case, we reverse and remand for further proceedings. ¶ 13 Although the dissent acknowledges our decision in Henry, it nonetheless attempts to interpret § 624(e) anew. In doing so, it relies heavily on a decision by the United States Court of Appeals for the Second Circuit, Travelers Insurance Co. v. Carpenter, 411 F.3d 323 (2d Cir. 2005), which preceded our decision in Henry. See post, ¶¶ 24-27, 37. It also cites a workers’ compensation treatise, as well as comments made by several lobbyists and legislators in connection with the statutory amendment at issue. Post, ¶¶ 25-27. Based on these sources, the dissent concludes that the Legislature plainly intended to allow injured employees to retain UIM awards until they are “made whole” for their non-economic losses. Post, ¶ 37. ¶ 14 Whatever the value of the sources cited by the dissent, they do not change the fact that this Court already adopted a different interpretation of § 624(e) in Henry. As discussed above, Henry did not make proration optional. Rather, it requires apportionment in every case to prevent a double recovery. Indeed, the Second Circuit — in Travelers Insurance Co. v. Henry, 470 F.3d at 62 — acknowledged that its earlier decision in Carpenter was superseded by ours in Henry, and it recognized that, under our Henry holding, the first step in the reimbursement process is apportioning a UIM award between economic and noneconomic damages. Id. Our interpretation of § 624(e) in Henry plainly controls this case, and pursuant to the doctrine of stare decisis, it must be applied here. See, e.g., Coyle v. Coyle, 2007 VT 21, ¶ 7, 181 Vt. 583, 925 A.2d 996 (mem.) (rejecting suggestion that Court revisit its interpretation of certain statute, and stating that where certain understanding of statute had been established by recent, earlier decision, doctrine of stare decisis was controlling). Reversed and remanded.