Self-insured retention must be met for each event

Neville Chemical Company (“Neville”), appealed the district court’s decision to grant a summary judgment to its surplus occupational injury insurance company, TIG, for failure to comply with the self-insured retention (SIR). IN Neville Chemical Company v. TIG Insurance Company, successor to Transamerica Insurance Company, no. 21-1616, United States Court of Appeals, Third Circuit (April 26, 2022)

FACTS

Neville, a Pittsburgh-based hydrocarbon resin manufacturer, maintained a self-insured work compensation program. To supplement this program, Neville purchased a “Specific Excess Workers Compensation Policy” (“Policy”) from TIG. Under this policy, after Neville provided workers ‘compensation benefits up to the $ 500,000 self-insured retention limit (“SIR”) per event, TIG was required to reimburse Neville for all workers’ benefits in excess of the SIR limit. Neville renewed this policy every year until at least January 1, 1994.

The injuries that Lawrence Kelley sustained occurred on three occasions during his employment with Neville. Neville accepted responsibility and began paying him benefits. Kelley again met the company doctor, who instructed him to give up work and referred him to an orthopedist. On August 15, 2003, an MRI of Kelly’s spine showed “degenerative discs” [at] L3-L4, L4-L5 and L5-S1 ”and L3-L4 intervertebral disc curvature. MRI did not show “evidence of herniated disc or duct stenosis”, which was previously shown on scans after his injury in 1993.

Kelley did not file a new claim for work injury compensation. Instead, Neville paid him workers’ benefits according to his claim on June 24, 1993. Kelley tried unsuccessfully to return to work on January 3, 2005. An orthopedist considered Kelley to be completely disabled on January 20, 2005.

Neville paid Kelley’s salary benefits for over a decade according to his salary rate in 1993. (shows benefits paid to and on behalf of Kelley from January 17, 1994 to June 14, 2018). By grouping the payments made due to the three damages, Neville believed that it had reached the SIR limit of $ 500,000 and informed TIG that it would seek damages under the policy. TIG denied Neville’s claim.

The district court rejected Neville’s claim and granted a summary judgment for TIG. The district court rejected Neville’s argument that the second and third damages were “recidivism” of the first damages. It concluded that each injury was an “event” so that the SIR was never reached and that even if the injuries were considered an “occupational disease” under the insurance, the insurance had ceased before the coverage would have been considered to begin.

DISCUSSION

Contract interpretation is a legal issue that requires the court to ascertain and enforce the intentions of the contracting parties as it is embodied in the written agreement. Courts assume that the language of an agreement is chosen with care and that the parties are aware of which language is used.

The policy stipulates that “[t]The company will make amends [i]insured for loss as a result of an event during the contract period “and” occurrence “, [sic] when applied to bodily injury, means “accident”. As the district court noted, the term “accident” is not defined in the policy. Thus, the District Court, as permitted and customary under Pennsylvania law, turned to the dictionary for assistance.

The term “accident” means a certain degree of coincidence as an unexpected and undesirable event, or an event that occurs unexpectedly or unintentionally. The district court concluded that the term “accident” in this case refers to a single, limited event of an “unexpected or unforeseen nature”. Based on the dictionary definition and the need for chance, the district court concluded that Kelley’s 1993, 2000 and 2003 incidents were separate accidents and thus distinct events for which coverage under the TIG policy would only have been triggered if the SIR limit of $ 500,000 was met for each event.

First, Neville argued that the district court erroneously referred to the dictionary to define the term “accident,” which is a term that in turn informs the meaning of the event through “bodily injury.” However, has always been and it is perfectly appropriate for courts to turn to the dictionary to define undefined terms.

Second, Neville argued that the district court failed to limit the meaning of “occupational disease” to the diseases listed under the Pennsylvania Workers’ Compensation Act when it ruled in the alternative that although the 1993, 2000 and 2003 incidents were not separate incidents through bodily injury, that coverage would still not be available because Kelley’s injuries otherwise constituted an occupational disease that occurred after the insurance had expired. Neville’s argument failed because it would cause the court to rewrite the explicit terms of the policy contrary to the well-established bill that courts must “carry out the intent of the parties to the agreement” and “assume that the language of an agreement [was] carefully selected. ” [In re Old Summit Mfg., LLC, 523 F.3d at 137]

References in the policy to the Pennsylvania Workers ‘Compensation Act do not in any way contain the definition of the term “occupational disease” or the term “cumulative injuries” under the Pennsylvania Workers’ Compensation Act. Reading this term and this concept into the policy to replace the policy definition and clear language would significantly change the intentions of the parties to the agreement expressed in the plain language of the agreement.

Third, Neville argued that the district court’s reading of the policy created an absurdity contrary to the purpose of the policy. The District Court’s reading of the policy, far from creating an absurdity, had an effect on the purpose of the policy as a excess workers’ remuneration policy. Where the district court’s interpretation of the policy is consistent with the general purpose of policies for excess compensation for employees, Neville’s interpretation would equate this surplus policy with a primary policy for compensation to employees.

Finally, Neville’s argument that the district court did not realize that the policy must be read to include the Pennsylvania Workers’ Compensation Act’s notions of “recidivism” and “deterioration” is irrelevant in this case.

State rules for compensation to employees do not apply to a surplus compensation policy because a surplus policy is not a compensation policy for employees.

Surplus insurance differs from primary insurance, especially when it exceeds an SIR. Neville, as self-insured, took an injured employee who was entitled to work injury compensation for three separate and distinct injuries and collected them into a single claim and then tried to get the surplus insurer to release Neville from his obligation to his injured employee. The attempt failed because the District Court and the Third Circuit realized that three separate accidents required three separate financing of $ 500,000 SIR.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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