Insured's fault precludes PIP reimbursement out of UIM award

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Sherry appealed the PIP reimbursement. The Court of Appeals reversed, holding that FIC could seek PIP reimbursement only after the insured is fully compensated for his loss. The Court of Appeals held that because Sherry did not receive the 70 percent of his damages that the arbitrator had found, he did not receive full compensation, and FIC was not entitled to any offset in reimbursement of its PIP payments.

FIC successfully petitioned the Washington Supreme Court for review. The Supreme Court affirmed the Court of Appeals’ decision and denied FIC any reimbursement of its PIP. Justice Tom Chambers wrote for the unanimous Court, “Adopting the approach urged by FIC would result in a very narrow view of what damages must be recovered before duplication occurs, and one that is not consistent with the general policy that insureds receive full compensation before an insurer can seek reimbursement.” Full compensation, he added, means that the insured has recovered all damages that he suffered in the accident, no matter whose fault caused them, including the insured’s own fault.

“An insurer is entitled to reduce an UIM arbitration award by previously paid PIP benefits only when its insureds are fully compensated for their actual damages, without reduction to account for the insureds’ fault,” the Court concluded.

The Court also considered whether the trial court was authorized to pass on the PIP-reimbursement issue. The Court concluded that under Washington’s statute governing arbitrations, a judge does not have authority to resolve coverage disputes when entering an judgment on an arbitration award. Here, however, the parties requested that the judge decide this issue, so that they effectively had amended their pleadings to include a request for declaratory relief. Accordingly, it was appropriate for the trial court to decide the PIP-reimbursement issue.