Arizona Supreme Court Finds No Workers' Compensation Offset for Underinsured Motorist Coverage
The Arizona Supreme Court issued an opinion in _ Cundiff v. State Farm Mutual Automobile Ins. Co._ which dealt with workers' compensation offsets in underinsured motorist (UIM) claims.
Pima County Deputy Sheriff Jean Cundiff was injured by a third-party while on the job, in her patrol car. Although she was paid certain workers' compensation benefits, the third-party only carried $15,000 in liability coverage. So, after accepting these minimal limits, Ms. Cundiff made a UIM claim with her insurer, State Farm.
State Farm, however, had a term in its policy that provided for an offset against any UIM coverage based upon benefits received from a workers' compensation carrier. The provision stated that: "Any amount payable under [UIM] coverage shall be reduced by any amount paid or payable to or for the insured under any worker[s'] compensation, disability benefits, or similar law. This does not reduce the limits of liability required by law for this coverage."
The claim went to arbitration and Ms. Cundiff prevailed. Nevertheless, relying upon the foregoing provision, State Farm was only willing to pay a reduced amount of the arbitration award, i.e., an amount offset based upon the benefits Ms. Cundiff received from her workers' compensation carrier. So Ms. Cundiff sued State Farm for the full amount she was due pursuant to the arbitration award, without application of any offset.
The trial court and Court of Appeals (in a published decision) sided with State Farm, but the Arizona Supreme Court reversed these decisions. Based on the terms of the UIM statute, which override the terms of the State Farm policy, the Supreme Court explained that only "liability insurance" can be deducted from the full value of an insured's loss to reduce the amount of the claim -- that is, only proceeds received from a liability policy will be offset against the full value of an insured's claim. The Court explained that, since workers' compensation does not constitute "liability insurance," workers' compensation benefits cannot be offset against an insured's claim.