South Carolina’s Exclusive Remedy Rule has prevented an employee from collecting $350,000 in uninsured motorist benefits for injuries she sustained in an automobile accident she was in while a passenger in a vehicle owned and driven by a co-employee. Stephany Connelly and a co-worker named Freya Trezona were traveling in a vehicle owned and driven by Trezona. In a case which for the first time defines the intersection between the South Carolina uninsured motorist statute and that state’s workers’ compensation statute, Connelly began receiving workers’ compensation benefits but also made a claim for bodily injury and UM benefits with her own insurance carrier and with Trezona’s carrier. Both companies denied the claim, maintaining Connelly’s sole remedy lay with the Workers’ Compensation Act. Both carriers denied the claims, so Connelly filed a declaratory judgment action.
The trial court held that Trezona’s vehicle was an “uninsured vehicle” because her insurer had denied coverage. It further ruled in favor of Connelly, noting that although the uninsured motorist statute requires that Connelly be “legally entitled to recover” from Trezona in order for her to be able to recover UM benefits, this statutory language was ambiguous because the phrase is not defined in either the South Carolina Code or either of the insurance policies and there is a jurisdictional split on the correct interpretation of the phrase. The circuit court explained that it was therefore required to interpret the UM statute in a manner consistent with the legislature’s intent, that being “to provide benefits to protect against the peril of injury or death by an uninsured motorist to an insured motorist.” Thus, the circuit court held that “legally entitled to recover” meant a plaintiff merely needed to show fault on the part of the uninsured driver and damages, and the Act’s provision of immunity to Trezona did not negate the fact that Connelly was “legally entitled to recover” from Trezona. The trial court’s logic was that UM coverage could co-exist with the Act’s exclusive remedy in these circumstances because (1) the Act’s exclusivity provision only bars tort actions, but a UM claim sounds in contract, not tort; (2) Connelly did not sue Trezona or her employer, so her claims did not run afoul of the exclusivity provision; and (3) Connelly’s recovery of UM benefits did not frustrate the Act’s goals, as Trezona, her employer, and the workers’ compensation carrier remained unaffected by allowing Connelly to receive UM benefits. The UM carriers appealed the case to the South Carolina Court of Appeals, which affirmed the ruling.
The South Carolina Supreme Court, in a ruling of first impression, reversed the courts below and said that South Carolina has repeatedly emphasized the importance of an injured motorist filing a tort suit and establishing the liability of the uninsured motorist prior to filing suit for UM benefits against an insurer. Laird ex rel. Laird v. Nationwide Ins. Co., 134 S.E.2d 206 (S.C. 1964) (“Recovery under the uninsured endorsement is subject to the condition that the insured establish legal liability on the part of the uninsured motorist. Such an action is one ex delicto and the only issues to be determined therein are the liability and the amount of damage. After judgment is entered against the uninsured motorist, a direct action “in contract” can be brought to recover from the insurance company on its endorsement….” (emphasis added)); see also Lawson v. Porter, 180 S.E.2d 643 (S.C. 1971) (collecting cases outlining the same requirement).
The Supreme Court added that the UM carrier has a right to demand strict compliance with the UM statute, which was clear and unambiguous in outlining the procedural obligations that the insured must discharge in order to recover UM benefits. Therefore, a UM insurer must be served with copies of the pleadings in the underlying tort suit against the uninsured motorist, and those pleadings must include “the formal allegations by the parties of their respective claims and defenses.” This affords the UM carrier with the opportunity to investigate and “take such steps as it deems necessary to protect its interest”—a matter of no small importance to the insurer given that it will be required to pay (within policy limits) any judgment entered against the uninsured motorist. The fact that the “pleadings” that must be served on the insurers including possible defenses necessarily lends support to our conclusion that the UM statute requires a factfinder to consider the presence and viability of any defenses to liability in a separate tort action—including the Exclusive Remedy Rule. Quite simply, Connelly was now legally able to pursue a tort claim against her co-employee, Trezona.
Because Connelly did not file a separate tort suit against Trezona, much less secure a judgment against her, so she was not “legally entitled to recover” against Trezona. While it is understandable why Connelly did not sue Trezona in tort—the Economic Loss Doctrine forbade it—Connelly’s failure to follow the substantive requirements of the UM statute are fatal to any possible claim against either her auto carrier or that of Trezona for UM benefits.
In a moment of introspection, the Supreme Court somberly noted that Connelly—who paid for UM and UIM coverage—will not receive the benefit of her contractual bargain with her carrier, Allstate, through no fault of her own. The court could think of no other step Connelly could have taken to protect herself from this type of circumstance: she was not driving, she did not cause or contribute to the accident, she had automobile insurance, and she paid additional amounts for UM and UIM coverage. As a result, Connelly’s argument—that the Supreme Court’s reading of the UM statute runs counter to the underlying legislative intent—has appeal. Nonetheless, ruling in favor of Connelly would have required the Supreme Court to contort the plain meaning of “legally entitled to recover” and materially rewrite the UM statute to provide an exception in the case of accidents caused by negligent co-employees who, by function of the Act, are immune from tort suits.
As is often the case, the strange nature of workers’ compensation law in the U.S. once against conflicts with uninsured motorist laws which assume an aggrieved, injured party and a tortfeasor who is responsible. The Supreme Court’s ruling not only affects the ability of the employee to recover damages above and beyond workers’ compensation benefits, but it also bars a workers’ compensation carrier from make a similar subrogation recovery under these facts. Recall that South Carolina has very little case law precedent to guide us when a workers’ compensation carrier looks to recover against UM and/or UIM benefits received by an employee following an accident. There is, however, an attorney general opinion which deduces that a carrier’s lien should not apply to UM coverage because subrogation in workers’ compensation cases is only allowed from proceeds realized through tort action. It states that “a workers’ compensation carrier…has no statutory right of subrogation in any payments made to the employee under the employee’s uninsured motorist policy.” 1977 S.C. Op. Atty. Gen. 320 (1977). However, there still appears to be no precedent dealing with the situation where the workers’ compensation carrier is seeking reimbursement out of benefits paid by a UM/UIM carrier which insures and is paid for by the employer.
For questions regarding subrogation of state workers’ compensation benefits in any of the country’s 51 jurisdictions, contact Elizabeth Hernandez at firstname.lastname@example.org.
Elizabeth K. Hernandez is an insurance litigation trial attorney and managing partner at Matthiesen, Wickert & Lehrer’s Jacksonville, Florida branch office. Elizabeth is licensed to practice in Florida and her practice focuses on complex property and casualty subrogation, workers’ compensation subrogation, and automobile subrogation.