State Farm, however, refused to pay Ms. Cothran any PIP benefits for medical expenses based on a “Workers’ Compensation Coordination” provision in its insurance policy that stated, “Any Personal Injury Protection Coverage provided by this policy applies as excess over any benefits recovered under any workers’ compensation law or any other similar law.”

The Cothrans sued State Farm, alleging breach of contract and bad faith refusal to pay insurance benefits.

The trial court granted summary judgment to the Cothrans on the breach of contract claim, finding the coordination provision violated Section 38-77-144 of the South Carolina Code, which provides that PIP coverage “is not subject to a setoff.”

The court of appeals reversed and the dispute reached the South Carolina Supreme Court.

The South Carolina Supreme Court’s Decision

The court reversed.

In its decision, the court reasoned that, in Section 38-77-144, the legislature intended – at least in part – to prevent an insurance company selling PIP coverage from reducing the amount of PIP it must pay because the insured received a third-party payment for the same expenses.

The court then found that State Farm’s coordination provision had this effect, and, therefore, that it was a setoff that violated the section.

The court explained that, through its coordination provision, State Farm attempted to designate the policyholder’s opportunity to recover workers’ compensation benefits as the policyholder’s primary source of repayment for medical expenses. If the workers’ compensation benefits equaled the medical expenses – as occurred here – or if the difference between workers’ compensation benefits received and the total medical expenses was less than the policy limit for PIP coverage, the coordination provision became effective.

In the latter example, the court added, State Farm’s obligation to pay PIP benefits would be reduced, but not eliminated. The court pointed out that in the former example – as occurred here – the effect of the provision was that State Farm paid no PIP benefits.

Thus, in this case, State Farm’s obligation to pay PIP coverage to Ms. Cothran was reduced – eliminated, in fact – by the amount her employer’s workers’ compensation carrier paid her for medical expenses. In other words, the court ruled, the coordination provision was a setoff.

Accordingly, the court concluded, when an insurer sought to reduce its obligation to pay benefits based on a third party’s previous payment for the same claim, it was a setoff. Because that was “the precise effect” of State Farm’s coordination provision, Section 38-77-144 prohibited the provision from reducing State Farm’s obligation to pay PIP benefits to the Cothrans.

The case is Cothran v. State Farm Mutual Automobile Ins. Co., No. 27914 (S.C. Aug. 7, 2019). Attorneys involved include: Charles Logan Rollins II, Hawkins Law Firm, of Spartanburg, for Petitioners. Robert William Whelan, Charles R. Norris, of Charleston, and C. Mitchell Brown, of Columbia, all of Nelson Mullins Riley & Scarborough, LLP, for Respondent.