As is the case in many no-fault states, Delaware employees injured in an automobile accident in the course and scope of employment might be entitled to both workers’ compensation and PIP benefits simultaneously. The Worker’s Compensation Act requires every employer in the state, unless excluded, to provide statutory workers’ compensation benefits to an injured employee. The philosophy of the Act is to give an injured employee, irrespective of the merits of any third-party negligence claims available, a prompt and certain source of wage loss compensation and medical care without subjecting himself to the hazards and delays of a lawsuit.[1]
On the other hand, Delaware is also a no-fault state. Delaware’s no-fault statute[2] promotes the expedient payment of medical expenses, lost earnings and property damage without regard to fault.[3] Unlike worker’s compensation benefits, however, payments issued pursuant to the no-fault statute are not limited to accidents occurring in the course and scope of employment. The PIP carrier is required under § 2118 to pay all benefits when they are ascertained or when they are actually incurred.
When read together, Delaware’s no-fault and workers’ compensation schemes cover the lien universe and establish a system of employer and insurer reimbursement for accident-related payments when the employee-policyholder recovers from a third-party tortfeasor. When both coverages apply at the same time, however, things get a little confusing. This is particularly true because Delaware courts allow the insured worker to choose whether to make his claim for payment of bills and wages from an accident through his PIP coverage, his worker’s compensation coverage, or both.[4]
The purpose of PIP (no-fault) coverage is to impose on the no-fault carrier not only primary, but ultimate, liability for the employee’s medical bills, to the extent of unexhausted PIP.[5] PIP is “primary” even if workers’ compensation benefits are available to the employee.[6] However, other Delaware case law seems to indicate that PIP benefits are “primary” in terms of first in sequence, but not primary in terms of who is the “ultimate payer.”[7] In Lane v. Home Ins. Co., the court stated:
The priority of responsibility falls upon the no-fault insurer and even if the workmen’s compensation benefits are available to an insured, the insureds PIP benefits under an automobile liability policy are still primary.[8]
Some practitioners dispute that PIP benefits are “ultimately primary” because of the right of the PIP carrier to seek indemnity from the workers’ compensation carrier. Section 2118(g)(1) spells out this right of indemnity:
(g) Insurers providing benefits described in paragraphs (a)(1)–(4) of this section shall be subrogated to the rights, including claims under any workers’ compensation law, of the person for whom benefits are provided, to the extent of the benefits so provided.
(1) Such subrogated rights shall be limited to the maximum amounts of the tortfeasor’s liability insurance coverage available for the injured party, after the injured party’s claim has been settled or otherwise resolved, except that the insurer providing benefits shall be indemnified by any workers’ compensation insurer obligated to make such payments to the injured party.[9]
The above subsection contemplates that a no-fault carrier will be subrogated to the employee’s worker’s compensation claim arising out of the same incident. After satisfying its duty to reimburse the PIP carrier, the worker’s compensation carrier maintains a subrogation lien on the proceeds of any third-party recovery under § 2363.
When an accident involves a motor vehicle, the workers’ compensation carrier must approach any subrogation rights as if it provided no-fault PIP benefits. For any PIP-eligible benefits up to the maximum available coverage or the statutory PIP minimum, the workers’ compensation carrier has only the same subrogation rights as the no-fault carrier and may only subrogate directly against the tortfeasor’s liability carrier as described below. In addition, the carrier’s subrogation claim is second in priority to the employee’s settlement, just like a PIP carrier’s subrogation rights. If coverage is exhausted in the liability case, then there is no PIP subrogation allowed—and likewise, no workers’ compensation subrogation is allowed for those PIP-eligible benefits.
The general rule is that anything payable under Delaware PIP (including deductibles) is not recoverable in a personal injury third-party suit. However, the PIP carrier has a right to subrogate directly against the third-party liability carrier (not the tortfeasor personally), to the extent of available coverage. This is not a “lien.” If the liability coverage is exhausted paying the employee’s personal injury claim, there is no PIP subrogation.
A popular tactic of plaintiffs’ attorneys is to tell the workers’ compensation carrier to look to the PIP carrier for reimbursement. This tactic comes from a 2013 unpublished opinion which says that the workers’ compensation carrier has a claim for reimbursement against a PIP carrier.[10] However, this ostensible right of reimbursement is at odds with other case law which indicates just the opposite—viz., that the PIP carrier has the right of reimbursement from the workers’ compensation carrier.[11] However, having the right to do something is different from having the obligation to do something. Attorneys will also often advise the no-fault carrier that their clients want to reserve PIP benefits for lost wages, because PIP pays lost wages at 80% and workers’ comp only pays 2/3 the average weekly wage.
Section 2902 states as follows with regard to the coverage an auto policy must provide for an employee injured in course and scope:
(e) Such motor vehicle liability policy need not insure any liability under any workers’ compensation law nor any liability on account of bodily injury to or death of an employee of the insured while engaged in the employment, other than domestic, of the insured or while engaged in the operation, maintenance or repair of any such motor vehicle, nor any liability for damage to property owned by, rented to, in charge of or transported by the insured.[12]
Delaware law provides that the PIP carrier is able to subrogate against a third party’s liability insurance and is specifically granted the right to subrogate against and seek indemnity from a workers’ compensation carrier.[13] Section 2118(g)(1) states:
(g) Insurers providing benefits described in paragraphs (a)(1)-(4) of this section shall be subrogated to the rights, including claims under any workers’ compensation law, of the person for whom benefits are provided, to the extent of the benefits so provided.
(1) Such subrogated rights shall be limited to the maximum amounts of the tortfeasor’s liability insurance coverage available for the injured party, after the injured party’s claim has been settled or otherwise resolved, except that the insurer providing benefits shall be indemnified by any workers’ compensation insurer obligated to make such payments to the injured party.[14]
Beyond Delaware’s workers’ compensation laws, the above no-fault statute says that PIP carriers paying no-fault PIP benefits are “subrogated to the rights, including claims under any workers’ compensation law, of the person for whom benefits are provided, to the extent of the benefits so provided.” Therefore, the PIP carrier’s subrogation rights against the third-party tortfeasor are limited as follows:
(1) PIP carrier is limited to recovering from the third party’s liability insurance coverage, after the injured party’s claim has been resolved.
(2) The PIP carrier’s subrogation rights are further limited by § 2118(h), which prohibits anyone “eligible” for PIP benefits from “pleading or introducing into evidence in an action for damages against a tortfeasor those damages for which [PIP] compensation is available.”
Section 2118(g) specifically recognizes this subrogation action by a subrogated insurer against the tortfeasor.[15] Therefore, when a PIP carrier has paid its insured and acquired those rights, it becomes a real party in interest. However, although the insurer is a real party in interest, it is so only to the extent of its subrogation rights. The PIP carrier cannot assert a claim in its own name on behalf of the insured for his claim.[16] A PIP subrogation suit may not be brought as part of or in conjunction with the injured party’s bodily injury suit. It must be brought in a separate suit (or Intercompany Arbitration).
Concerning the respective rights and obligations of PIP and worker’s compensation carriers, two crucial clauses in the statutory language above should stand out. First, the general grant of subrogation rights in § 2118(g) specifically states that a PIP carrier is subrogated to the insured’s claims for worker’s compensation benefits. Second, § 2118(g)(1) carves out an exception to the “policy limits” rule and gives the PIP carrier a clear right to seek indemnification from the worker’s compensation carrier.
Notwithstanding the clear statutory language above, Delaware courts have muddied the waters and added confusion to the PIP/workers’ compensation subrogation landscape. Conflict between the Worker’s Compensation Act and the No-Fault Act has a long and jumbled history in the Delaware courts. A pair of decisions rendered following the 1993 amendment to § 2363(e) actually support the argument that a worker’s compensation carrier may seek reimbursement from a PIP carrier where the employee is entitled to each.[17] However, neither of these two cases appears to have a legitimate foundation in the below precedent they cite as authority.
- Cicchini v. State of Delaware.[18] Prior to the 1993 amendment, the generally accepted interaction between § 2363(e) and § 2118(g) was clearer, though by no means straightforward. In the 1993 case of Cicchini v. State, the Delaware Superior Court explained that PIP benefits were primary over workers’ compensation benefits and the PIP carrier must pay first, after which they should pursue subrogation against the tortfeasor’s carrier.[19] If there was no insurance, or the coverage was exhausted, then it could exercise its rights against the worker’s compensation carrier. The worker’s compensation carrier could, in turn, seek reimbursement from the employee’s third-party recovery, thus holding the tortfeasor ultimately liable.
(2) Peiffer v. City of Wilmington. In 1993, § 2363(e) was amended to clarify the allocation of a recovery from a third-party action. The amendment reads as follows:
(e) In an action to enforce the liability of a third party, the plaintiff may recover any amount which the employee or the employee’s dependents or personal representative would be entitled to recover in an action in tort. 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 the Workers’ Compensation Act to date of recovery, and the balance shall forthwith be paid to the employee or the employee’s dependents or personal representative and shall be treated as an advance payment by the employer on account of any future payment of compensation benefits, except that for items of expense which are precluded from being introduced into evidence at trial by § 2118 of Title 21, reimbursement shall be had only from the third party liability insurer and shall be limited to the maximum amounts of the third party’s liability insurance coverage available for the injured party, after the injured party’s claim has been settled or otherwise resolved.[20]
The underlined portion reflects the language added by the amendment. It addressed the situation where no fault, or PIP, benefits are involved. When the legislature limited the compensation carrier’s clear third-party recovery right, however, they also disrupted the established loss-shifting model set forth in Cicchini. The effect of this amendment on the Cicchini model was addressed in the 1996 case of Peiffer v. City of Wilmington, wherein the court recognized that the worker’s compensation carrier no longer had a right to reimbursement from the employee’s tort recovery, and held instead that:
[t]he worker’s compensation carrier will have to look to the PIP carrier for reimbursement and not to the sums the plaintiff might recover. The plaintiff will receive money, and the PIP carrier ultimately will be responsible for the PIP benefits.[21]
The reasoning in Peiffer is mainly unsupported, and runs counter to the PIP carrier’s subrogation and indemnity rights set forth in the No-Fault Act. It also ignores a crucial step set forth in Cicchini, which is that the PIP carrier may seek reimbursement from the worker’s compensation carrier if liability limits are insufficient.
Accident Fund Ins. Co. v. Zurich American Ins. Co. Fast forward to 2013, and the case of Accident Fund Ins. Co. of America v. Zurich American Ins. Co.[22] In that case, the worker’s compensation carrier, Accident Fund, filed suit against Zurich, the PIP carrier, seeking reimbursement. Zurich moved to dismiss for failure to state a claim, and the court denied the motion. In its discussion, the court stated:
The purpose of the no-fault statute is to impose upon the no-fault carrier … not only primary but ultimate liability for the [injured party’s] covered medical bills to the extent of … unexpended PIP benefits. The priority of responsibility falls upon the no-fault insurer and even if the workmen’s compensation benefits are available to an insured, the insured PIP benefits under an automobile liability policy are still primary.[23]
The court then looked to the Peiffer decision and concluded that Accident Fund, as subrogee of the employee, had stated a claim for reimbursement against Zurich.
While Accident Fund is favorable to worker’s compensation carriers, there are numerous problems that undermine its usefulness. First, the decision is a ruling on a motion to dismiss, which has a more relaxed standard of review. Second, the court’s reliance on State Farm v. Nalbone is misplaced.[24] The quotation was taken from Nalbone’s dissent, not the actual decision. Furthermore, the case the Nalbone dissent was quoting—Int’l Underwriters, Inc. v. Blue Cross and Blue Shield of Delaware, Inc.[25]—did not involve worker’s compensation. Rather, it addressed the question of whether a health insurer could pursue a subrogation claim against its insured’s PIP coverage. The case is distinguishable because, unlike workers’ compensation, the No-Fault Act does not give a PIP carrier any recovery rights against a health insurer. The case of Lane v. Home Ins. Co. is equally unhelpful, if not detrimental.[26] The Lane court recognized that PIP coverage is “primary” but also noted that § 2118(g)(1) “contemplates that a no-fault insurer will be subrogated to the employee’s workmen’s compensation claim arising out of the same incident.”[27] This highlights a major source of confusion in the body of cases that have addressed this question.
The Delaware courts have consistently held that PIP is “primary.”[28] However, the term “primary” does not appear to have its ordinary meaning in these cases, which is an insurer’s obligation to pay first until coverage is exhausted, with other insurer’s paying excess only. In this context, “primary” means “first.” Cicchini and Lane are both good examples of this. In Cicchini, the insured employees sought to have their claims processed through PIP first, and then through worker’s compensation when the PIP limits were exhausted. The court agreed that the PIP must pay first, but also stated very clearly that after making “primary” payment, the PIP carrier may seek reimbursement from the worker’s compensation carrier. In Lane, the PIP carrier and the worker’s compensation carrier were one in the same. The employee argued that the PIP was primary and, therefore, the carrier had no lien on his third-party recovery. The court held that the PIP coverage was “primary,” but that it had a right of reimbursement against the worker’s compensation coverage. After the carrier “reimbursed” itself out of the worker’s compensation coverage, it then had a worker’s compensation lien in that amount against the employee’s third-party recovery.
Tunnell v. Philadelphia Indemnity Ins. Co. On November 26, 2014, the Superior Court of Delaware took another look at the issue.[29] Tunnell was an auto accident, personal injury case, in which the plaintiff sought PIP benefits from his auto carrier but was also acting within the scope of his employment at the time of the accident and also recovered workers’ compensation benefits. The parties agreed that the amendment to § 2363(e) put the PIP carrier and the workers’ compensation carrier in the same position when an auto accident was involved. For PIP benefits payable under § 2118, the maximum recoverable by either is any funds remaining on the third-party liability carrier’s policy limits after the employee has made a full recovery. The defendant claimed that the amendments to § 2363(e) mean that any medical payments made by the PIP carrier or workers’ compensation carrier are both limited to the subrogation rights given a PIP carrier under § 2118(g). The Court disagreed, holding that the amendments dealt only with workers’ compensation subrogation and had no application to personal injury protection coverage.
Amguard Insurance Company A/S/O Richard E. Cleveland. On May 31, 2023, the Superior Court of Delaware decided a case in which the employee was entitled to both workers’ compensation benefits and PIP benefits.[30] On August 23, 2022, AmGuard Insurance Company, the worker’s compensation carrier, brought suit against Donegal, the PIP insurer, for subrogation of workers’ compensation benefits paid to Cleveland. Donegal filed a Motion to Dismiss. AmGuard right to subrogation is supported by the 1993 amendments to § 2363(e) and Delaware case law. The 1993 amendments were crafted to maximize a Plaintiff’s recovery by allowing the worker’s compensation carrier to look to the PIP carrier, as opposed to the Plaintiff’s recovery, for reimbursement. Also, the issue of primary and ultimate payer is irrelevant because AmGuard argued that it had a right to reimbursement from the PIP carrier. It maintained that its subrogation claim was supported by the 1993 amendments to § 2363(e) and Delaware case law. The 1993 amendments were crafted to maximize a Plaintiff’s recovery by allowing the worker’s compensation carrier to look to the PIP carrier, as opposed to the Plaintiff’s recovery, for reimbursement. Also, the issue of primary and ultimate payer is irrelevant because AmGuard maintains a right to reimbursement from the PIP carrier.
On the other hand, Donegal maintained that AmGuard’s claim was in direct contravention to the statutory language of 19 Del.C. § 2363(e), which specifies that a workers’ compensation carrier may only seek reimbursement from the third-party liability insurer, not the no-fault PIP insurer. Donegal contended that AmGuard, in its assertion that a worker’s compensation carrier can seek reimbursement from a PIP carrier for payments made under the worker’s compensation policy, misconstrues the amendments made to § 2363(e) in 1993 and contradicts the Court’s well-established precedent. It further noted that 21 Del.C. § 2118 (g)(1) authorizes the no-fault PIP insurer to seek indemnification from any worker’s compensation insurer obligated to make payments to the injured party. Hence, Donegal argues that allowing AmGuard, as a worker’s compensation carrier, to pursue subrogation against it, as the PIP insurer, would lead to an absurd result, where Donegal could simply turn around and counterclaim against AmGuard for indemnification under § 2118(g)(1).
The court agreed with Donegal, stating that AmGuard’s claim directly contradicted the clear language of § 2363(e) and § 2118(g) and could be sustained as a viable cause of action. Section 2363(e) expressly states that a worker’s compensation carrier seeking subrogation may only obtain reimbursement from the third-party liability insurer. By implication, this means that reimbursement shall not be sought against the no-fault insurer. “third-party liability insurer” and “no-fault insurer” are not one and the same.[31] Following the Titus decision, the court ruled that AmGuard’s position was at odds with the express language of § 2363(e) which limits AmGuard’s right to reimbursement to an action against the tortfeasor’s liability insurer. Reimbursement may NOT be sought by the worker’s compensation carrier against the PIP no-fault carrier. Section 2118 makes clear that the compensation carrier has a reimbursement obligation to the no-fault carrier when benefits from both carriers have been paid out to the insured. The workers’ compensation carrier ultimately reimburses the PIP carrier for payment of those benefits which are required to be paid under the workers’ compensation statute.[32]
Summary. In conclusion, there is a long-standing conflict in the Delaware courts over whether a workers’ compensation carrier may seek reimbursement of PIP-eligible benefits directly from the PIP carrier, or whether the reverse is the case. The worker’s compensation carrier will not be able to assert a lien on a settlement with a third-party tortfeasor for benefits paid by the workers’ compensation carrier which would have been “eligible” to be paid under PIP. It does not matter whether the bills or wages were paid by the PIP carrier first or the workers’ compensation carrier as long as the medical expense and/or wages were “eligible” to be paid under PIP. In that case, the workers’ compensation carrier is likely precluded from asserting a lien for such payments. As long as the workers’ compensation carrier is asserting a lien for indemnity or medical benefits which are PIP-eligible, it has no lien against a third-party settlement. However, the workers’ compensation carrier would have a lien for things like permanency awards or disfigurement payments out of the third-party recovery. PIP coverage pays medical bills which are incurred as a result of the accident within two (2) years of the date of the accident.[33] Therefore, medical benefit payments made by the workers’ compensation carrier after the two-year period would not be PIP-eligible and could be subrogated from the third-party or out of a third-party recovery. As an example, if there are $25,000 in medical expenses and lost wages, and there is a $15,000 minimum PIP limit, the workers’ compensation carrier has a lien for only $10,000 out of a third-party settlement; and the last $15,000 should either be pursued from the PIP carrier who can then subrogate against the liability carrier (assuming there are adequate limits), or pursued directly from the liability carrier as a PIP carrier could under 2118(g).
We have confirmed with counsel in the AmGuard case that they are not appealing. For the time being then, Delaware is saddled with an unfortunate split of authority. For questions about auto subrogation anywhere in the U.S., contact Gary Wickert at gwickert@mwl-law.com.
[1] Frank C. Sparks Co. v. Huber Baking Co., 96 A.2d 456 (Del. Super. 1953).
[2] 21 Del.C. § 2118.
[3] DeVincentis v. Maryland Casualty Co., 325 A.2d 610 (Del. Super. 1974).
[4] Community Sys., Inc. v. Allen, 1999 WL 1568331 (Del. Super. 1999).
[5] State Farm Mut. Auto. Ins. Co. v. Nalbone, 569 A.2d 71 (Del.1989; Int’l. Underwriters, Inc. v. Blue Cross & Blue Shield of Del., Inc., 449 A.2d 197 (Del.1982).
[6] Lane v. Home Ins. Co., 1988 WL 40013 (Del. Super. 1988).
[7] AmGuard Insurance Company a/s/o Richard E. Cleveland v. Donegal Mutual Insurance Company, 2023 WL 3789445 (Del. Super. 2023).
[8] Lane, supra.
[9] 21 Del.C. § 2118(g)(1).
[10] Accident Fund Ins. Co. of Am. v. Zurich Am. Ins. Co., 2013 WL 6039914 (Del. Super. 2013) (unreported decision).
[11] AmGuard Insurance Company a/s/o Richard E. Cleveland v. Donegal Mutual Insurance Company, 2023 WL 3789445 (Del. Super. 2023).
[12] 21 Del. C. § 2118(e).
[13] 21 Del. C. § 2118(g).
[14] 21 Del. C. § 2118(g)(1).
[15] DeVincentis v. Md. Cas. Co., 325 A.2d 610 (Del. Super. 1964).
[16] The Peninsula Ins. Co. v. Marshall J. Wynne, 1978 WL 139207 (Del. Com. Pl. 1978).
[17] Peiffer v. City of Wilmington, 1996WL527208 (Del. Super. Ct., Aug. 31, 1996); Accident Fund Ins. Co. of America v. Zurich American Ins. Co., 2013 WL 6039914 (Del. Super. Ct., October 31, 2013).
[18] Cicchini v. State of Delaware, 640 A.2d 650 (Del. Super. Ct. 1993).
[19] Id.
[20] 69 Del. Laws, c. 116 § 1 (1993).
[21] Peiffer v. City of Wilmington, 1996 WL 527208 (Del. Super. 1996).
[22] Accident Fund Ins. Co. of America v. Zurich American Ins. Co., supra.
[23] Id., citing State Farm Mut. Auto. Ins. Co. v. Nalbone, 569 A.2d 71 (Del. 1989) and Lane v. Home Ins. Co., 1988 WL 40013 (Del. Super. 1988).
[24] Nalbone, supra.
[25] Int’l Underwriters, Inc. v. Blue Cross and Blue Shield of Delaware, Inc., 449 A.2d 197 (Del. 1982).
[26] Lane v. Home Ins. Co., 1988 WL 40013 (Del. Super. 1988).
[27] Id.
[28] Cicchini v. State, 640 A.2d 650 (Del. Super. 1993); Lane v. Home Ins. Co., supra; Pennsylvania Manufacturers Ass’n Co. v. Oliphant, (Del. Super. 1986).
[29] Tunnell v. Philadelphia Indem. Ins. Co., 2014 WL 7010665 (Del. Super. 2014).
[30] Amguard Insurance Company A/S/O Richard E. Cleveland, 2023 WL 3789445 (Del. Super. 2023).
[31] Titus v. Nova Cas. Co., 2012 WL 6755476 (Del. Super. Oct. 26, 2012) (comp carrier cannot subrogate against UM/UIM carrier).
[32] Cicchini v. State, 640 A.2d 650 (Del. Super. 1993).
[33] Id.
