Virginia Insurance Coverage:  Supreme Court interprets auto policy’s workers compensation exclusion

In Christy v. Mercury Casualty Company, No. 102138 (March 2, 2012), the Supreme Court of Virginia held that an exclusion in an automobile insurance policy barred the insured from receiving any payment for medical expenses where a portion of medical expenses had already been paid by workers' compensation benefits.

The plaintiff police officer was a passenger in a car driven by a Washington County sheriff's deputy. The car was struck from behind, and the plaintiff sustained a number of injuries. The parties did not dispute that the accident arose out of and occurred during the course of the plaintiff’s employment with the town. Among other injuries, the plaintiff’s physician opined that he experienced a tear of the labrum in his left shoulder as a result of the accident, that required surgery.

At the time of the accident, the plaintiff was covered by three different insurance policies. The Town of Abington obtained its workers’ compensation coverage through the Virginia Municipal League Insurance Programs ("VMLI"). The plaintiff received his primary health insurance coverage through a physician-hospital organization ("PHO"). Additionally, the plaintiff was insured under an automobile liability policy issued by Mercury Casualty Company. The Mercury policy included coverage for medical expenses incurred as a result of injuries arising out of the use of a motor vehicle. In relevant part, the policy provided that it did not apply "to bodily injury sustained by any person to the extent that benefits therefor[] are in whole or in part payable under any [workers'] compensation law."

The workers’ compensation insurance carrier, VMLI, paid a portion of the plaintiff's total medical expenses. However, VMLI denied claims for the plaintiff’s surgery to repair his labrum, asserting that the injury was a pre-existing condition and therefore not compensable under the workers’ compensation policy. The balance of the plaintiff's medical expenses was either paid or resolved by the plaintiff and the PHO.

The plaintiff subsequently submitted a claim to Mercury demanding payment under the medical expense coverage of his policy. Mercury denied the claim, asserting that the exclusion provision barred coverage due to the fact that some of the plaintiff’s medical expenses were, in part, payable under workers’ compensation law.

On appeal, the plaintiff argued that the exclusion applied only “to the extent” that some portion of his medical expenses were paid by workers' compensation benefits. The plaintiff argued that the exclusion acted only to offset any amount actually paid by the workers' compensation carrier, without regard to whether he successfully pursued a claim for all medical expenses. In doing so, the plaintiff argued that the policy language operates to prevent a "double recovery" by not allowing the insured to receive full payment for medical expenses from both a workers' compensation provider as well as an automobile insurance provider.

Defendant Mercury argued its interpretation of the exclusion, asserting that it excluded all coverage if any portion of plaintiff’s medical expenses were subject to workers’ compensation.

The Court ultimately found in favor of defendant Mercury Casualty, holding that the policy exclusion limited the scope of coverage for medical expenses, rather than the amount of coverage in the form of a set-off against workers’ compensation benefits. The court noted the fact that VMLI did pay a portion of plaintiff’s medical expenses pursuant to its workers' compensation policy. The court also noted that there was no dispute over whether the accident arose out of and in the course of the plaintiff's employment. Accordingly, the Court held that the clear and unambiguous language of the exclusion permitted defendant Mercury Casualty to deny coverage where the expenses were payable under workers’ compensation law. Thus, the exclusion permitted Mercury Casualty to deny coverage for any expenses which would have been subject to workers' compensation coverage by VMLI without regard to whether all of those expenses were actually paid by VMLI.