Death Be Not Covered

By Nicole Killoran

In re Estate of Dunn v. Windham Northeast Supervisory Union, 2012 VT 93.

Workers’ compensation schemes have a simple structure: the State requires employers to carry workers’ compensation insurance to reimburse employees for medical and economic losses resulting from work-related injuries—even if a third-party tortfeasor caused the injury.  In the latter case, the insurer ends up paying the bill for someone else’s screw up. 

To be fair, Vermont’s workers’ compensation program gives the insurer a right to recover its losses from whatever award the employee gets as compensation from the wrongdoer.  It also allows the insurer to go after the wrongdoer directly if the employee doesn't sue.  This is what is known in the business as subrogation: insurer gets to stand in the employee’s proverbial work shoes and sue the wrongdoer on the employee’s behalf.

Today’s case involves a work-related injury gone really, really bad: the employee, a member of the Windham Northeast Supervisory Union, had surgery for a work-related injury to her knee and died from “complications.”  Following this tragedy, Employee’s family received death benefits from two sources: the school’s workers’ compensation insurer, Vermont School Boards Insurance Trust; and Employee’s own life insurance policy, which went directly to her husband, its beneficiary. 

Employer and the workers’ compensation insurer (acting as Claimants against the Estate) went after the death benefits from the life insurance policy to offset what Insurer paid for the surgeon/hospital’s deadly mistake.  The Estate and Claimants met informally with the Department of Labor, then submitted cross motions for summary judgment to the Department of Labor Commissioner on the question of whether the governing statute, 21 V.S.A. 624(e), entitled Claimants to the reimbursement they wanted.

The statutory provision that is the crux of this case allows the insurer to recover in two situations: 1) where the employee gets compensation from the tortfeasor; and 2) where the employee is also reimbursed by a private policy such as uninsured- or underinsured-motorist insurance, and would otherwise get reimbursed twice for the injury (“double recovery”).  The Commissioner read the statute to only allow recovery from a private policy’s proceeds where the proceeds were paid in connection with a third-party’s tort.  Claimants appealed.

On appeal, the Department of Labor certified the question on appeal as whether Claimants were entitled to reimbursement from the life insurance policy for the benefits paid on account of her death.  This being a question of pure statutory interpretation, the SCOV owes no deference to any interpretations below; the Court reviews questions of law de novo.  Despite Claimants’ creative arguments though, the SCOV agrees with the Commissioner and shoots down the Employer and Insurer’s attempt to dip into the life insurance pot.

Claimants tried to label the life insurance policy death benefits payout as “recovery of damages” for Employee’s death, which can be tapped under the statute.  But, the SCOV says, the word “damages” is a term of art that is usually understood to mean “pecuniary compensation, recompense, or satisfaction for an injury done or a wrong sustained.”  Life insurance policy proceeds provide a lump sum to the named beneficiary, or the deceased’s estate, as compensation for the loss of a loved one and post-mortem expenses, but there is no “wrong” to trigger payment other than the insured’s death. 

This interpretation is in keeping with the policy of fairness underlying the statute, the SCOV notes.  Where the employer isn’t directly responsible for the injury, such as when an employee is injured on the clock by an uninsured motorist, it’s only fair to let the workers’ compensation insurer recover from whatever “economic damages” the employee receives under their private uninsured motorist insurance policy.

But wait! cry Claimants.  Doesn't this exception for double recovery from an uninsured motorist policy mean that workers’ compensation insurers can at least tap into the portion of life insurance benefits that are technically “economic damages,” i.e., lost wages, medical expenses, etc.?  Sorry, the SCOV says, but in terms of life insurance “death is not a ‘loss,’” it’s merely the triggering event for a payout of a certain promised sum of money.  Unlike with workers’ compensation, or even uninsured motorist coverage, an employee’s family doesn't have to prove the nature and scope of, or responsibility for, a particular injury to recover death benefits from a life insurance policy: all it has to do is provide a copy of the death certificate.

The SCOV concludes that Claimants don’t get reimbursed from life insurance proceeds for having to pay for the surgeon/hospital’s epic failure.  Such is the life of a workers’ compensation insurance carrier: win some, lose some, and hope that someone else will foot the bill.