THE STATE OF SOUTH CAROLINA In The Supreme Court

Wadette Cothran and Chris Cothran, Petitioners,

v.

State Farm Mutual Automob ile Insurance Company and Robert Tucker, Defendants,

of which State Farm Mutual Automobile Insurance Company is the Respondent.

Appellate Case No. 2018-000235

ON WRIT OF CERTIORARI TO THE COURT O F APPEALS

Appeal from Spartanburg County L. Casey Manning, Circuit Court Judge

Opinion No. 27914 Heard May 29, 2019 – Filed August 7, 2019

REVERS ED

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.JUSTICE FEW: Section 38-77-144 of the South Carolina Code (2015) provides that no-fault personal injury p rotection (PIP) insurance covera ge "is not subject to a setoff." This appeal requires us to consider whether section 3 8-77-144 prohibits an

automobile insurance carrier from reducing its obligation to pa y PIP benefits to its insured by the amount of workers' compensation benefits the ins ured received for medical expenses. We hold that it does.

I. Facts and Procedural History

Wadette Cothran incurred approximately $40,000 in medical expen ses from injuries she received in an automobile accident. Her employer's workers ' compensation carrier paid all of her medical expenses. She was also covered by her automobile insurance policy issued to her and her husband Chris by State F arm Mutual Automobile Insurance Company. T he State Farm policy provided PIP coverage with a limit of $5,000. However, Stat e Farm refused to pay her any PIP benefits for medical expenses based on a "Workers' Compensation Coordination " provision in the policy. The "Coordina tion" provision states,

Any Personal Injury Protecti on Coverage provided by this policy applies as excess over any benefits recovered under any workers' compensation la w or any other similar law.

The Cothrans filed this lawsuit against State Farm alleging bre ach of contract and bad faith refusal to pay insurance benefits.

The circuit court granted summary judgment to the Cothrans on t he breach of contract claim, finding the "Coordination" provision violated s ection 38-77-144. The court of appeals reversed. Cothran v. State Farm Mut. Auto. Ins. Co. , 421 S.C. 562, 808 S.E.2d 824 (Ct. App. 2017 ). We granted the Cothrans' petition for a writ

of certiorari. We reverse the c ourt of appeals, and reinstate the summary judgment.

II. Section 38-77-144

We begin with the text of section 38-77-144.

There is no personal injury protection (PIP) coverage

mandated under the automobile insurance laws of this State. Any reference to personal injury protection in Title

38 or 56 or elsewhere is deleted. If an insurer sells nofault insurance coverage whi ch provides personal injuryprotection, medical payment coverage, or economic loss coverage, the coverage shall not be assigned or subrogated and is not subject to a setoff.

§ 38-77-144.

We focus on the language "the [ PIP] coverage . . . is not subje ct to a setoff." The

term "setoff" is not defined in our Insurance code. Therefore, we apply the term's "usual and customary meaning." Perry v. Bullock , 409 S.C. 137, 140-41, 761 S.E.2d 251, 253 (2014). Merriam-Webster defines "setoff" as "somethi ng that is set off against another thing" and as "the discharge of a debt by setti ng against it a distinct

claim in favor of the debtor." Setoff , W EBSTER ' S N INTH N EW C OLLEGIATE

D ICTIONARY (1988). The term is defined in B LACK ' S L AW D ICTIONARY as, "A defendant's counterdemand against the plaintiff, arising out of a transaction independent of the plaintiff's claim," and, "A debtor's right to reduce the amount of a debt by any sum the cred itor owes the debtor." Setoff , B LACK ' S L AW D ICTIONARY (11th ed. 2019).

However, the term "setoff" is al so commonly used to describe any reduction in the

amount a defendant or insurance co mpany would otherwise be obli gated to pay on a claim, when the right to the reduction arises as a result of a payment from a third

party. Our courts have used the term for this meaning in numer ous cases. In Smith

v. Widener , 397 S.C. 468, 724 S.E.2d 188 (C t. App. 2012), for example, th e plaintiff filed suit to recover funds she claimed should have been paid t o her, but were wrongly paid to other parties. 397 S.C. at 471, 724 S.E.2d at 190. Before trial, the

defendant who made the contested payment settled. At the concl usion of trial, the jury found the defendants who received the payment had done so wrongfully, and they must pay the funds to the plaintiff. Id. These defendants argued the judgment to be entered against them must be reduced by the amount the pl aintiff received

before trial in settlement. Id. The parties, the trial court, and the court of appeals framed the question as whether the non-settling defendants were entitled to a "setoff"

because of this third-party payment. The court of appeals held that "before entering judgment on a jury verdict, the court must reduce the amount of the verdict to account for any funds previously paid by a settling defendant, so long as the settlement funds were paid to compensate the same plaintiff on a claim for the same injury." 397 S.C. at 471-72, 724 S.E.2d at 190. The court des cribed this as a "setoff" that arises by operation of law. 397 S.C. at 472, 724 S.E.2d a t 190 (citing Ellis v.

Oliver , 335 S.C. 106, 111, 515 S.E. 2d 268, 271 (Ct. App. 1999)). See also Rutland v. S.C. Dep't of Transp. , 400 S.C. 209, 217, 734 S.E.2d 142, 146 (2012) (finding the trial court properly reduced a j ury verdict against one defenda nt by the amount paidin settlement by different defendants, and calling that a "set- off"); Huck v. Oakland Wings, LLC , 422 S.C. 430, 436, 813 S.E.2d 288, 291 (Ct. App. 2018) (stati ng, "A nonsettling defendant is entitled to credit for the amount paid by another defendant who settles," and calling that a "setoff" (quoting Welch v. Epstein , 342 S.C. 279, 312, 536 S.E.2d 408, 425 (Ct. App. 2000))); Ellis , 335 S.C. at 109, 515 S.E.2d at 270 (addressing whether a defenda nt was entitled to a "set-off" to reduce the judgment against him by the amount a third party paid the plain tiff for his medical expenses).

A setoff, therefore, ta kes two primary forms. The first—not ap plicable here—is when person A's obligation to pay person B is reduced by the am ount of B's obligation to A, regardless of w hether the corresponding obliga tions arose from the

same transaction or subject matter. See Setoff , B LACK ' S L AW D ICTIONARY . The second—which is applicable here—is when A's (State Farm's) obli gation to pay B (Wadette) is reduced by the amo unt of C's (workers' compensatio n carrier's) payment to B, where A's and C's obligations to pay did arise from the s ame transaction or subject matter.

The Legislature obviously intended to use the term "setoff" in this second form—as

we did in Rutland , and the court of appeals did in Huck

, Smith

, Welch , and Ellis

— when it drafted section 38-77-144. 1 In the context of PIP coverage, we can envision no situation in which an insured's obligation back to the insur er could reduce the insurer's obligation to the insured. Rather, the only thing th at could ever be set off against PIP coverage is a third-pa rty payment, such as a paymen t from a tortfeasor

or the workers' compensation bene fits Wadette received. Becaus e "setoff" is not a situation that could arise under the first definition, the term becomes relevant in section 38-77-144 only under the second definition.

This discussion allows us to frame the issue before us more pre cisely. In section 38

- 77-144, the Legislature intended— at least in part—to prevent an insurance company

1 Counsel for State Farm attempted to argue at oral argument tha t under this

definition of setoff—which counsel contended was overbroad and thus ambiguous—

even a deductible would be a setoff. We do not agree. An insu rance company's obligation to pay is provided un der the terms of the policy. A setoff is a reduction in the amount of the obligation to the extent there has been a third-party payment. If there is a deductible, the insura nce company was never obligate d to pay the amount of the deductible. Rather, the reduction is provided under the terms of the policy. A deductible, therefore, is not a setoff.that sells PIP coverage from reducing the amount of PIP it is o bligated to pay because

the insured received a third-part y payment for the same expense s. If State Farm's "Coordination" provision has this effect, it is a setoff, and i t violates the section.

Through its "Coordination" provision, State Farm attempts to de signate the policy holder's opportunity to recover wo rkers' compensation benefits as the policy holder's primary source of repayment for medical expenses. If the worke rs' compensation benefits equal the medical expenses—as occurred here—or if the difference between

workers' compensation benefits r eceived and the total medical e xpenses is less than the policy limit for PIP coverage, the "Coordination" provision becomes effective. 2 In the latter example, State Far m's obligation to pay PIP benef its would be reduced, but not eliminated. In the former example—as occurred here—the effect of the provision is that State Farm pays no PIP benefits. In this cas e, State Farm's obligation to pay PIP coverage to Wadette is reduced—eliminated , in fact—by the amount her employer's workers' compensation carrier paid her fo r medical expenses. In other words, the "Coordination" provision is a setoff. 3

2 The following scenarios illustrate the effect of the "Coordina tion" provision. Wadette incurred approximately $40,000 in medical expenses. He r PIP benefits policy limit is $5,000. If her workers' compensation benefits were less than $35,000, the "Coordination" provision would have no effect and State Far m would owe her the policy limit. If her workers' compensation benefits were $ 37,500, the "Coordination" provision would ta ke effect and State Farm would owe her $2,500. In this case, her workers' comp ensation benefits equaled the to tal amount of her medical expenses, so the effect of the "Coordination" provision would be to eliminate State Farm's obligation to pay any PIP benefits.

3 The term "setoff" is used unive rsally to describe the reductio n of PIP benefits by the amount of a third-party payment, including workers' compensation. This is explained in A PPLEMAN ON I NSURANCE . "More often than not, multiple sources of recovery are available to the inj ured insured. As long as ther e is no policy or statutory provision limiting or restricting multiple recovery, payments may be made under more than one policy or p lan." 6 Jeffrey E. Thomas, N EW A PPLEMAN ON

I NSURANCE L AW L IBRARY E DITION § 66.09[1] (2019). The A PPLEMAN subsection

goes on to explain, "Most no-fault statutes have some sort of c oordination of benefits language," like the "Coordination" provision in State Farm's po licy purports to be. However, subsection 66.09[1] and the next one—subsection 66.09[2][a] entitled "Statutory Setoffs -- Workers' Compensation"—make it clear that when no-fault benefits are reduced by payments from a workers' compensation c arrier, it is a "setoff." Thomas, supra § 66.09[2][a]; see also 12 Steven Plitt et al., C OUCH ONState Farm attempts to avoid this straightforward analysis by r elying on this Court's opinion in State Farm Mutual Automobile Insurance Co. v. Richardson , 313 S.C. 58, 437 S.E.2d 43 (1993), and in particular our statement "the Legislature intended the set-off prohibition [4] . . . to apply only to the tortfeasor," 313 S.C. at 61, 437 S.E.2d at 45. The court of appeals agreed with State Farm that Richardson is controlling. Cothran , 421 S.C. at 569, 808 S.E.2d at 828. We do not agree

Richardson may be read as expansively as State Farm argues and the court of appeals

held. Richardson involved a different policy pr ovision and a different set of f acts.

If Richardson is to control this case, it must be because the reasoning is a pplicable here, not simply because the words we chose to explain our reas oning—when read out of context—might appear to restrict the effect of the statu te. As we will explain, the reasoning of Richardson is not applicable in this case.

The question in Richardson was whether section 38-77-145, see supra note 4,

invalidated a policy provision that prevented the stacking of P IP benefits from two automobile policies issued by the same insurer. 313 S.C. at 59 , 437 S.E.2d at 44. 5

I NSURANCE § 171:67 (3d ed. 2018) ("[A] no-fault insurer may be entitled t o setoff

from the injured party's coverage amounts the insured has recei ved from various other sources for the same injury."); 46A C.J.S. Insurance § 2236 (2018) ("Ordinarily, a no-fault insurance carrier is entitled to set o ff insured's workers' compensation benefits

. . . where the workers' compensation ben efits are intended to

serve the same purpose as no-fault benefits, and required to be paid." (footnotes omitted)). The important point here is not that the law of oth er jurisdictions might permit—or even require—a setoff under the circumstances of this case, but that the effect the "Coordination" provi sion has in this case is univers ally called a "setoff."

4 When originally enacted, and at the time this Court decided Richardson , section

38-77-144 was numbered 38-77-145. See Act No. 148, 1989 S.C. Acts 427, 470;

S.C. Code Ann. § 38-77-145 (Supp. 1989); Richardson , 313 S.C. at 60, 437 S.E.2d at 45 (quoting S.C. Code Ann. § 38-77-145 (Supp. 1992)).

5 The policy provision on wh ich State Farm relied in Richardson stated,

If two or more policies issued by us to you, your spouse, or your relatives provide vehicle Medical Payments Coverage and apply to these same bodily injuries sustained . . . the total limits of liability under all suchThe insureds "incurred medical expenses in excess of $20,000 . . . [and] filed a claim

for PIP benefits under two State Farm automobile insurance poli cies that each

carried a $10,000 maximum." Id. State Farm paid the insureds $10,000 under one policy, but refused to make any PIP payment under the other pol icy. Id. We found the provision on which State Farm relied was not a "setoff." 3 13 S.C. at 61, 437

S.E.2d at 45.

Both policies at stake in Richardson were issued by State Farm, and the PIP coverages in each were identical. This is important for two re asons. The first reason is the policy provision defined the coverage State Farm sold to its insured; it was not

an attempt to direct how separate coverages from different insu rers interact. The provision in both State Farm policies stated that if there are two policies "issued by us to you," you may recover only the limits of one policy. On the other hand, had the two policies been issued by different insurers, the provisi on would not have applied. Thus, there was no se tting off of one coverage agains t another. Rather,

there was but one coverage, and t hat coverage was to be paid ac cording to the terms

of the State Farm policies. For this reason, we held "the disp uted language in its policy comprises [sic] an anti-stacking [] clause rather than a set-off." 313 S.C. at 60,

437 S.E.2d at 44.

The second reason this is importa nt is the coverages in the Sta te Farm policies were

identical no-fault PIP. The cove rages in this case—PIP coverag e and workers' compensation coverage—are not t he same. PIP coverage is first- party coverage a policy holder purchases to pay medical expenses no matter who i s at fault in causing

the accident. See S.C. Code Ann. § 38-77-10(4) (1989) (repealed by Act No. 148, 1989 S.C. Acts 427, 513). "The key concept embodied in PIP no fault coverage is that an injured person needs to promptly pay expenses necessari ly arising out of injuries sustained, and needs support for himself and his famil y during the period of recuperation." Hamrick v. State Farm Mut. Auto. Ins. Co. , 270 S.C. 176, 180, 241 S.E.2d 548, 549 (1978); see also 46A C.J.S. Insurance § 2184 (2018) ("No-fault statutes are intended to protect persons injured in accidents i nvolving a motor vehicle, by assuring that such ac cident victims receive compens ation, reparations, or financial assistance, that is certain , and that is provided in a prompt and expeditious

policies shall not exceed that of the policy with the highest limit of liability.

313 S.C. at 59, 437 S.E.2d at 44.fashion . . . ." (emphasis added) (footnotes omitted)). 6 State Farm's contention that it can take insurance that is by definition primary and simply label it as "excess" in an attempt to make it not prima ry is a stretch under any circum stances. 7 Under section 38-77-144, it is prohibited.

Finally, we disagree with State Farm and the court of appeals t hat the legislative history we considered in Richardson supports a finding that the "Coordination" provision in this case is not a setoff. 8 The legislative history of section 38-77-144 supports our reading of the plain language of the section that the "Coordination" provision is a setoff.

As we stated in Richardson , the Legislature "made sweeping reforms in automobile

insurance law" in 1989. 313 S. C. at 60, 437 S.E.2d at 45. We stated,

6 Workers' compensation insurance is also no-fault. Nicholson v. S.C. Dep't of Soc.

Servs. , 411 S.C. 381, 389, 769 S.E.2d 1, 5 (2015). However, it is no t first-party insurance like PIP, and its availability to an employee is subj ect to the provisions of

the Workers' Compensation Act after potentially protracted liti gation in front of the

workers' compensation commission. But see Russell v. Wal-Mart Stores, Inc. , 426

S.C. 281, 285, 287, 826 S.E.2d 863, 865-66 (2019) (refocusing t he commission on its "primary" role in avoiding "c omplicated and protracted liti gation").

7 State Farm contends the "Coordi nation" provision does not viol ate section 38-77

- 144 because it "is an excess clause, not a setoff." According to State Farm, "An

excess clause is '[a]n insuranc e-policy provisi on . . . that li mits the insurer's liability to the amount exceeding other ava ilable coverage. This clause essentially requires other insurers to pay first." (quoting Excess clause , B LACK ' S L AW D ICTIONARY (10th ed. 2014)).

8 Ordinarily, after concluding the plain language of a statute c ontrols, we would not consider legislative history or any other indication of legisla tive intent. See Timmons

v. S.C. Tricentennial Comm'n , 254 S.C. 378, 401, 175 S.E.2d 805, 817 (1970) ("If a statute is clear and explicit in its language, then there is no need to resort to statutory interpretation or legislative intent to determine its meaning." ). We do so in this case solely to address the error of the court of appeals in relying on our legislative history analysis in Richardson

. See Cothran , 421 S.C. at 570-71, 808 S.E.2d at 829 (stating "despite the language of secti on 38-77-144 appearing to prohibit any setoff of PIP benefits, our supreme court declared the legislative intent of that section was to prohibit tortfeasors from reducing their liability by the amoun t of PIP benefits" (citing Richardson , 313 S.C. at 61, 437 S.E.2d at 45)).In section 57 of [Act 148], the Legislature repealed the

tortfeasor's statutory "set-off" authorized by section 38- 77-290(f). See 1989 S.C. Acts at 513. Concurrently, in section 34 of Act 148, the Leg islature expressly provided that PIP coverage was not subject to a "set-off." See 1989

S.C. Acts at 470. In our view, the Legislature intended for the "set-off" prohibition in section 34 of Act 148 to

refer to the statute allowing reduction of a tortfeasor's liability which was repealed in section 57 of Act 148. Accordingly, we find that the "set-off" prohibited by section 34 of Act 148, now codi fied in section 38-77-145,

is the tortfeasor's reduction in liability formerly allowed by section 38-77-290(f).

Id.

Our legislative-history focus in Richardson was the repeal of subsection 38-77- 290(f), which—prior to its repeal—required the setoff of PIP be nefits in favor of a

tortfeasor. See § 38-77-290(f) (1989) (providing PIP "benefits received or reco vered

. . . must be deducted from any tort recovery, settlement, or j udgment for bodily injury"). The fact the Legislatu re repealed the provision requ iring a setoff against a

tortfeasor's liability, and simu ltaneously prohibited any setof f against PIP coverage when it enacted section 38-77-145, see supra note 4, was important to us in understanding whether the anti-stacking provision was invalidat ed by the setoff prohibition in section 38-77-144.

It was not necessary in Richardson for us to discuss the fact the Legislature also repealed former subsection 38- 77-290(d) in 1989. Subsection 38 -77-290(d) required a setoff of workers' compensation benefits received by an insur ed against an insurer 's obligation to pay PIP benefits. See § 38-77-290(d) (1989) (repealed by Act No. 148, 1989 S.C. Acts at 513) ("Benefits payable [under the PIP statut e 9 ] must be reduced to the extent that the recipient has recovered be nefits under w orkers' compensation laws . . . ."). Thus, former subsection 38-77-290(d) required by law precisely what State Farm seeks to obtain in this case by policy provision. T he Legislature, however, repealed the subsection. If the repeal of subsection 38-77-290(f) was

9 Here, former subsection 38-77-2 90(d) referred to former sectio n 38-77-240 of the South Carolina Code (1989) (repealed by Act No. 148, 1989 S.C. Acts at 513), which

is the section that r equired PIP coverage.useful to us in Richardson to understand whether an anti-stacking provision violated section 38-77-144, then the r epeal of subsection 38-77-290(d) i s even more important to us in understanding whether State Farm's "Coordination" provision is prohibited. In other words, the fact the Legislature repealed the legal requirement that workers' compensation benefits be set off against PIP, and simultaneously provided PIP coverage "is not s ubject to a setoff," is forceful proof that the Legislature intended the setoff prohibition must apply to worke rs' compensation

benefits.

III. Conclusion

When an insurer seeks to reduce its obligation to pay benefits based on a third party's previous payment for the same cl aim, it is a setoff. Because t hat is the precise effect of State Farm's "Coordination" p rovision, section 38-77-144 pro hibits the provision

from reducing State Farm's oblig ation to pay PIP benefits to th e Cothrans. We reverse the court of appeals a nd reinstate the summary judgment in their favor.

REVERSED.

BEATTY, C.J., KITTR EDGE, HEARN and JAMES, JJ., concur.