Penn. Supreme Adds Exception to Subrogation Rule in Jones Act Case

The Pennsylvania Supreme Court has sided with an insurer seeking subrogation for payments it made to an injured worker before it was determined the insurer was not obligated to make the payments.

The state’s highest court, in a 6-0 decision released Wednesday, adopted an exception to the general prohibition against an insurer subrogating against an insured in cases where the risk is one the insurer did not insure. In so doing, it reversed an opinion by the statewide appeals court, the Commonwealth Court, that upheld the general prohibition without any exception.

The case involved a worker, Robert Arlet, who was injured when he slipped and fell on an icy sidewalk on the premises of his employer, Flagship Niagara League, a nonprofit that manages the U.S. Brig Niagara and its homeport, the Erie Maritime Museum.

The employer had a commercial hull policy from Acadia Insurance Co. that covered damages caused by the Brig Niagara and for Jones Act protection and indemnity coverage for the “17 crewmembers” of the Brig Niagara. The Jones Act provides enhanced protection to “seamen” and allows them to sue an employer for negligence and to recover for workplace injuries. Once an individual is found to be covered by federal maritime law, the state workers’ compensation law is preempted.

Acadia paid benefits under its policy’s “maintenance and cure” provision, which “concerns the vessel owner’s obligation to provide food, lodging, and medical services to a seaman injured while serving the ship.” Acadia paid the benefits to Arlet in accordance with the Jones Act, pending a determination of whether he should in fact be covered under the policy. There were questions about whether Arlet qualified as either a “crewmember” or a “seaman” and whether the two terms were interchangeable. The insurer paid maintenance of $50.00 per day for 92 days plus $42,133.36 in medical expenses.

Arlet’s employer Brig Niagara also had purchased workers’ compensation insurance from the State Workers’ Insurance Fund (SWIF) but SWIF said that policy had lapsed at the time of Arlet’s injury.

On February 8, 2013, Arlett filed a claim for the state workers’ compensation benefits effective March 9, 2011. His employer, Brig Niagara, took the position that Arlet’s remedy was exclusively governed by the Jones Act, and furthermore that he had fully recovered from his injury by May 12, 2011.

The case reached the state appeals court after workers’ compensation courts differed over Arlet’s status. A state workers’ compensation judge ruled Arlet was a “seaman” covered exclusively under the Jones Act and therefore ineligible for workers’ compensation benefits. The judge reasoned that the term “member of the crew” as used in the commercial hull policy, and the term “seaman” as used in the Jones Act, were synonymous.

Arlet appealed and the Workers’ Compensation Appeals Board (WCAB) reversed, reasoning that, as a land-based employee, Arlet did not meet the definition of seaman under the Jones Act and was, therefore, entitled to pursue his workers’ compensation claim. Arlet was awarded total disability benefits at a weekly rate of $411.75 from March 8, 2011 to August 19, 2011.

Also, the WCAB went further and ruled that because the employer ‘s workers’ compensation insurance policy had lapsed at the time of claimant’s injury, the employer would be responsible for payment of the amount of the award that exceeded the benefits paid under the commercial hull policy, being net uncompensated wage loss of $5,046.71.

Additionally, the workers’ compensation court held that Acadia was not entitled to subrogation because it had correctly paid claimant under its commercial hull policy, and that, if the employer failed to pay, the insurer must pay the benefits, with leave to later pursue reimbursement from employer.

On appeal in 2020, the Commonwealth Court agreed Arlet was not a seaman and/or crewmember and thus was not entitled to benefits under Acadia’s policy. It also affirmed that “it is well settled that an insurer cannot subrogate against its own insured.”

Thus the Supreme Court was asked whether the Commonwealth Court erred when it affirmed the WCAB’s finding that Acadia did not have a right to subrogation for benefits paid to a claimant under a Jones Act policy of insurance, despite the Commonwealth Court’s initial holding that claimant was not a seaman and/or crewmember entitled to the benefits that the insurer should not have paid him.

Acadia argued that the authority relied upon by the Commonwealth Court involves factual circumstances that are “materially distinct” from the Arlet case, specifically that the subrogation sought in this case is for “payments made on a risk against which the insurer did not insure.” The lower courts’ determinations established that the claimant was not a member of the crew, that the term “crewmember” is interchangeable with the term “seaman” for Jones Act interpretation and application, and the Jones Act and workers’ compensation act remedies are mutually exclusive. Therefore, it was established that the claimant is entitled to benefits under the state workers’ compensation act but not under the Jones Act. The insurer added that the Commonwealth Court has recognized a statutory right of subrogation by non-responsible insurance companies under the Workers’ Compensation Act.

The Supreme Court decided the insurer was correct that this case has a critical distinguishing fact from other cases that applied the general rule on insurer subrogation against an insured. Unlike in the previous cases, this insurer’s policy was found not to cover the claimant’s injury and the insurer, therefore, had not contracted to assume the risk of the claimant’s injury.

In the opinion, written by Associate Justice Sallie Updyke Mundy, the high court declared:

“As a matter of first impression for this Court, we conclude that the ‘no-coverage exception’ to the general equitable rule precluding an insurer from pursuing subrogation against its insured comports with the purposes and public policy supporting the rule and hereby adopt it as the law of this Commonwealth. For example, the conflict of interest perceived to be present when an insurer seeks subrogation from an insured for a covered loss is not implicated where the loss is found not to be covered.”

Chief Justice Max Baer and Justices Debra Todd, Christine Donohue, Kevin Dougherty and David Wecht joined the opinion.

About the photo: The U.S. Brig Niagara sails in the Parade of Ships that began the Cleveland Tall Ships Festival on July 7, 2010. The replica warship, constructed in 1988, is maintained by the Flagship Niagara League nonprofit.