Opinion ID: 2258498
Heading Depth: 2
Heading Rank: 1

Heading: Employer's Appeal: Availability of Severance Benefit Offset

Text: Employer argues that the language in Section 204(a) is ambiguous at least insofar as it concerns the applicability of the offset provision to privately insured employers. Employer posits that, if the General Assembly had intended to restrict the availability of severance offsets only to self-insured employers, it could have done so easily and explicitly by using the modifier self-insured. Indeed, Employer notes that the Act contains a separate provision, Section 305, 77 Pa.C.S. § 501(a)(2), specifically addressing self-insurance. In Employer's view, the severance benefit offset adopted in 1996 reflects a legislative determination that a claimant should not receive duplicate benefits in the form of severance pay and workers' compensation for the same loss of earnings. The offset thereby curtails the cost of work injuries. Employer notes that workers' compensation insurance rates are based in part upon claims history, and therefore, the reduction of workers' compensation benefits via severance offsets ultimately curtails costs even for privately insured employers, since the offset should result in lower future insurance premiums. Employer further asserts that the only logical interpretation of the phrase employer directly liable for the payment of compensation is to understand it as a reference to cases where there are multiple concurrent employers. This asserted construction results in a scheme which would reduce the costs of work injuries by making the offset available only to the employer actually liable for the work injury, and not to any other employer the employee may have. Employer argues that, when this purpose of the offset provision's language is considered, it is clear that the General Assembly intended that the offset apply to privately-insured as well as self-insured employers. Employer further argues that its interpretation is supported by settled rules of statutory construction, citing 1 Pa.C.S. § 1932(b) (statutes in pari materia shall be construed together), and § 1922(1) (General Assembly does not intend result that is absurd, impossible of execution or unreasonable). Looking to related provisions in the Act, Employer queries why Section 204(c) would require employees to report regularly to the insurer any receipt of severance benefits if the General Assembly truly intended the offset provision to apply only to self-insured employers. Employer also notes that, once liability for a work injury is established, the Act as a whole does not distinguish between employers based on their insurance status; rather, the employer and the insurer are seen as one. Employer further argues that this Court has discouraged drawing distinctions between self-insured employers and privately insured employers. Such a uniform treatment of employers would also ensure the uniform treatment of employees. Claimant responds that Section 204(a) is clear and unambiguous and supports the Commonwealth Court's conclusion that only self-insured employers are entitled to an offset of severance payments against workers' compensation benefits, because the offset is only available to those employers who are directly liable for compensation. Because Employer here has a private workers' compensation insurer, Claimant argues, Employer is not directly liable for payment of her workers' compensation benefits, and thus, is not entitled to the severance offset. Claimant further argues that Employer's interpretation renders the language directly liable for compensation mere surplusage. Claimant also submits that the terms employer and insurer are not interchangeable in all instances. Thus, in Claimant's view, although Section 305 of the Act states that insurers are entitled to all of the employer's immunities and protections, this Section does not grant an insurer all of the employer's rights, such as the right to an offset. Claimant also disputes Employer's assertion that Section 204(c) requires employees to report regularly to the insurer the receipt of other compensation that postdates the compensable injury, asserting that, when properly construed, Section 204(c) in fact requires employees to report this information to their employer. Claimant further argues that the supposed legislative purpose of precluding double recoveries for the same loss of earnings is not advanced by granting a private insurer a credit for severance pay. Claimant notes that prior to the 1996 amendment's adoption of a severance offset, the courts had recognized that there was a different intent behind severance pay and workers' compensation benefits. Since the amendment, Claimant avers that courts have continued to allow an employer to take credit for a severance payment only if the payment is directly employer-funded. Furthermore, Claimant argues that the simultaneous receipt of severance benefits and workers' compensation benefits does not represent an impermissible double recovery because severance is paid as a result of the employee's separation from the employer regardless of injury, while workers' compensation is paid to compensate the physical inability to work caused by a workplace injury. Finally, Claimant argues that allowing an employer's private insurer to take the offset does not comport with the Pennsylvania Workers' Compensation Manual of Rules, Classifications, and Rating Values for Workers' Compensation and Employer's Liability Insurance (Manual), which is published by the Pennsylvania Compensation Bureau. In accordance with this Manual, Claimant asserts that premiums are computed on the basis of the total remuneration paid or payable for employees covered by the policy, but that severance pay is not taken into consideration. Claimant therefore concludes that the goal of reducing workers' compensation costs would not be furthered by granting a severance offset to a private insurer. The principles governing this Court's review are settled. The object of interpretation and construction of Pennsylvania statutes is to ascertain and effectuate the intention of the General Assembly. See 1 Pa.C.S. § 1501 et seq. In construing statutory language, [w]ords and phrases shall be construed according to rules of grammar and according to their common and approved usage.... 1 Pa.C.S. § 1903(a). When the words of a statute are clear and free from all ambiguity, that plain language is generally the best indication of legislative intent. Bowser v. Blom, 569 Pa. 609, 807 A.2d 830, 835 (2002); Pennsylvania Financial Responsibility Assigned Claims Plan v. English, 541 Pa. 424, 664 A.2d 84, 87 (1995); 1 Pa.C.S. § 1921(b) (When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.). It is only when the words of the statute are not explicit on the point at issue that resort to statutory construction is appropriate. 1 Pa.C.S. § 1921(c); see also Commonwealth v. Packer, 568 Pa. 481, 798 A.2d 192, 196 (2002). [5] We are also mindful that [o]ur basic premise in workmen's compensation matters is that the Workmen's Compensation Act is remedial in nature and intended to benefit the worker, and, therefore, the Act must be liberally construed to effectuate its humanitarian objectives. Hannaberry, 834 A.2d at 528 (quoting Peterson v. Workmen's Compensation Appeal Bd. (PRN Nursing Agency), 528 Pa.279, 597 A.2d 1116, 1120 (1991) (collecting cases)). Accordingly, borderline interpretations of the Act are to be construed in the injured party's favor. Hannaberry, 834 A.2d at 528 (quoting Harper Collins v. Workmen's Compensation Appeal Bd. (Brown), 543 Pa.484, 672 A.2d 1319, 1321 (1996)). We agree with Employer that Section 204(a) is ambiguous with respect to the specific question presented here, i.e., whether all employers, or only self-insured employers, qualify for purposes of the severance offset. The ambiguity is demonstrated by the plausible but opposing arguments forwarded by the parties. Thus, Claimant notes that the General Assembly easily could have included the word insurer if it had intended the offset to apply to insurers as well as employers, while Employer asserts that the General Assembly just as easily could have used the phrase self-insured employer if it wanted to make explicitly clear that the offset was intended to be limited only to that class of employers. Moreover, the General Assembly's use of the word liable (employer directly liable for the payment of compensation) could be construed either narrowlyas evidencing liability in the sense of the entity who ultimately writes the compensation check, which would suggest that only self-insured employers would be entitled to the offsetor more broadly, as speaking in terms of the legal predicate for the award of workers' compensation benefits. In the latter instance, a privately insured employer could be said to be liable for the payment of compensation, even though, by obtaining private insurance, that employer secured a source for discharging its liability for the actual benefits payment. The definitional sections of the Act contribute to the ambiguity. On one hand, Article I of the Act includes a definition of employer that provides as follows: The term `employer,' as used in this act, is declared to be synonymous with master, and to include natural persons, partnerships, joint-stock companies, corporations for profit, corporations not for profit, municipal corporations, the Commonwealth, and all governmental agencies created by it. 77 P.S. § 21. This definition does not mention the employer's insurance carrier. But, the term employer is defined differently in Article IV of the Act, which governs Procedure. Thus, Section 401 of the Act states that: `employer,' when used in this article, shall mean the employer as defined in article one of this act, or his duly authorized agent, or his insurer if such insurer has assumed the employer's liability or the [State Workers' Insurance F]und if the employer be insured therein. 77 P.S. § 701 (emphasis supplied). This Court's plurality opinion in Brown v. Travelers Ins. Co., 434 Pa. 507, 254 A.2d 27 (1969) (Opinion by Jones, J., joined by Bell, C.J., and Eagen, J.), synthesized the Act's apparently divergent definitions of the term employer. [6] The question in Brown was whether Section 303 of the Act, 77 P.S. § 481, conferred the same immunity from common law liability upon an employer's workers' compensation insurer as upon the participating employer itself. As then drafted, Section 303 spoke only of employers, and not of insurance carriers. [7] The insurance carrier in Brown nevertheless argued that it was included in the term employer as set forth in Section 303, citing in support to the broader definition of employer found in Section 401. The claimant responded that the Article IV definition should be deemed to apply only to that article, and not to previous articles, and thus the general and more restrictive definition of employer set forth in Article I controlled. After noting a division of authority on the question in the courts of the Commonwealth, the plurality noted its agreement with the exhaustive and able opinion of Judges Barbieri and Ullman, of the Court of Common Pleas of Philadelphia County, in a case which, though unrelated, was also named Brown v. Travelers Ins. Cos., 37 Pa. D. & C.2d 111 (Pa.Com.Pl., Phila.County1965). Noting that both trial judges had had extensive experience in workmen's compensation prior to their elevation to the bench, the Brown plurality quoted the previous Brown opinion at length: [A]rticle I (including section 103) and article IV (including section 401), are neither of them substantive. We have termed them `external' articles, as compared with the legislatively designated substantive articles II and III. In short, the first and fourth articles are ancillary, descriptive, unsubstantive and are both basically procedural in significance. It would have been inappropriate for the legislature to have included the workmen's compensation insurance carrier as synonymous with employer in section 103 of article I of the act, because that section was delineating the status of employer and employe for the limited purposes of their status as parties to the statutory agreement to accept the compensation system which was set up in article III   . Chronologically speaking, it would be pointless and fruitless to discuss the insurance carrier in article I of the act, because the need for insuring could not arise until article III had become operative. It is the `master' alone (who, before he accepts the act, has no need for a compensation insurance carrier), who is concerned with the substantive provisions of articles II and III. The employer not only has the right to reject the act, but frequently has done so.... Article IV set up all of the provisions for every form of process and remedy available to a claimant and the manner in which liability of the employer to him is to be met, satisfied, settled, concluded and released; so that ... the insurance carrier shares every one of the obligations, prerequisites, benefits, and release rights of the employer. Thus, we find the legislature stating in section 401 that the employer, who had to be defined in section 103 solely as the `master' for articles II and III purposes, would, for all remedial or procedural purposes, be taken to be a complex entity, including within its scope the compensation insurer (be it a private company or the State Workmen's Insurance Fund), and the agent of such `master'. 254 A.2d at 28-29 (quoting Brown v. Travelers Ins. Cos., 37 Pa. D. & C.2d at 119, 120). [8] The plurality then noted three policy considerations weighing in favor of this construction of the Act, which equated the insurer with the employer. First, failing to afford immunity to insurers would lead to a regrettable discrimination ... between employers who are insured by the State Workmen's Insurance Fund or are self-insuring employers and those employers who carry private insurance. The plurality noted that such discrimination would be inequitable and unjust both to the employers who utilize private insurance and to their employees. The plurality did not believe that the General Assembly ever intended such discrimination. Second, the plurality noted that a failure to afford insurers the same immunity from tort liability due to employers would discourage insurers from implementing voluntary safety programs in the workplace, for fear of being sued if a program were negligently implemented. Third, the plurality noted that the weight of authority from other jurisdictions supported a holding that insurers were entitled to the same immunity as employers. Brown, 254 A.2d at 29-31. For all of those reasons, the plurality concluded that the insurance carrier is included within the term `employer' as that word is used in Section 303 and, therefore, shares the employer's immunity from common law liability. Id. at 31. Although Brown was a plurality decision, it has since been treated as binding authority for the proposition that the term employer as used in Section 303 includes insurers. See DeJesus v. Liberty Mutual Ins. Co., 439 Pa. 180, 268 A.2d 924, 925-26 (1970) (six Justices participating; plurality opinion by Jones, J., joined by Cohen and Eagen, JJ., with Bell, C.J., concurring in result); Jadosh v. Goeringer, 442 Pa. 451, 275 A.2d 58, 61 (1971) (unanimous opinion by O'Brien, J., for four-Justice Court) (deeming proposition that insurer is included within term employer as used in Section 303, and therefore is entitled to immunity, as finally determined by Brown and DeJesus ). See also Manolovich v. Workers' Compensation Appeal Bd. (Kay Jewelers), 694 A.2d 405, 408 (Pa.Cmwlth.1997) (the relationship between the employer and its insurance carrier is such that the two parties are in fact a single complex entity for purposes of defending against a claim); Heraeus Electro Nite Co. v. Workers' Compensation Appeal Bd. (Ulrich), 697 A.2d 603, 607 (Pa.Cmwlth.1997) (same). Accord Hankee v. Wilkes-Barre/Scranton Int'l Airport, 532 Pa. 494, 616 A.2d 614, 619 (1992). This case, of course, involves the Section 204(a) severance offset, rather than Section 303 immunity. Nevertheless, both questions have to do with remedial aspects of the Act, and specifically with the rights afforded to employers who participate in the workers' compensation system and to their insurers. Accordingly, the analysis of the structure of the Act accepted by the Brown plurality and by later decisions of this Court, which equates the employer and its workers' compensation insurance carrier for remedial purposes (and thus draws no distinction between self-insured and privately-insured employers), remains convincing and ultimately is controlling here. Our conclusion in this regard is corroborated by the fact that the Brown plurality's analysis of the Act is consistent with fundamental precepts of statutory construction. Statutory words and phrases are to be interpreted with reference to the context in which they appear. 1 Pa.C.S. § 1932; P & R Welding & Fabricating v. Workers' Compensation Appeal Bd. (Pergola), 549 Pa.490, 701 A.2d 560, 564 (1997). In this regard, it is indeed significant that, once an employer has accepted the Act, and once liability for a work-related injury has been established, the Act generally does not distinguish between self-insured employers and those who purchase private coverage. For instance, Section 301 provides that, Every employer shall be liable for compensation for personal injury to ... each employe, by an injury in the course of his employment, and such compensation shall be paid in all cases by the employer, without regard to negligence.... 77 P.S. § 431. This liability provision makes no reference to insurers, but a later provision, Section 305 does, as it provides that where an employer purchases workers' compensation coverage, the insurer shall assume the employer's liability hereunder, and shall be entitled to all of the employer's immunities and protection hereunder.... 77 P.S. § 501(a)(1). This immunity and protection is the necessary concomitant of the liability accepted. Interpreting Section 204(a) so that only a self-insured employer is entitled to the protection or immunity of a severance benefit offset would negate this provision, and create an inconsistent and absurd result. We also agree with Employer that, considering the Act as a harmonious whole, it is significant that Section 204(c) provides that, [t]he employe is required to report regularly to the insurer the receipt of ... severance benefits ... which post-date the compensable injury under this act, subject to the fraud provisions of Article XI. 77 P.S. § 71(c) (emphasis added). A failure to disclose the receipt of a severance payment to the insurer can expose the claimant to criminal liability. 77 P.S. §§ 1039.2, 1039.5. [9] The notion that a failure to report severance payments to the insurer can expose the claimant to criminal charges, yet the insurer has no interest in those payments for offset purposes, is the type of absurd construction that Section 1922(1) of the Statutory Construction Act is designed to prevent. It is also significant that the Department of Labor and Industry (Department) construes this statute, which it administers, as drawing no distinction between self-insured and privately-insured employers for purposes of the severance offset. Section 204(d) of the Act directs the Department to issue rules and regulations to interpret[] the provisions of the act which authorize the offset of workers' compensation benefits by amounts received in ... severance ... subsequent to the work-related injury. 77 P.S. § 71(d); 34 Pa.Code § 123.1. The Department's regulations require employees to report to the insurer amounts received in ... severance ... benefits on form LIBC-756, `Employee's Report of Benefits' ... within 30 days of the employe's receipt of such benefits. 34 Pa.Code § 123.3(a), (b) (emphasis added). Section 123.4(a) of the Department's regulations then provides that the insurer has a right to offset the receipt of those reported severance benefits: After receipt of Form LIBC-756, the insurer may offset workers' compensation benefits by amounts received by the employe from any of the sources in § 123.3 (relating to employe report of benefits subject to offset). The offset of workers' compensation benefits only applies with respect to amounts of unemployment compensation, Social Security (old age), severance and pension benefits received subsequent to the work-related injury. 34 Pa.Code § 123.4(a) (emphasis added). The insurer's right to offset of severance payments is corroborated by Section 123.11(a) and (c): (a) Workers' compensation benefits otherwise payable shall be offset by amounts an employee receives in severance benefits subsequent to the work-related injury....     (c) When the employee receives severance benefits in a lump-sum payment, the net amount received by the employee shall be divided by the weekly workers' compensation rate. The result is the number of weeks, and fraction thereof, the insurer may offset against future payments of workers' compensation benefits. 34 Pa.Code 123.11(a), (c) (emphasis added). While the Department's administrative interpretation does not bind us, it is consistent with our understanding of the Act and we therefore deem it persuasive. See 1 Pa.C.S. § 1921(c)(8); Commonwealth v. Gilmour Manufacturing Co., 573 Pa. 143, 822 A.2d 676, 679 (2003) (interpretation of agency charged with administration of act is entitled to some deference, albeit an interpretive regulation which is unwise or violative of legislative intent should be disregarded). It follows from our interpretive conclusion that we also agree with Employer that the General Assembly intended the phrase employer directly liable for compensation in Section 204(a) primarily to account for situations where a claimant has more than one employer and to clarify that, in that scenario, it is the employer/insurer responsible for the workers' compensation benefits and the severance payment, who is entitled to a severance offset. Double recovery for the same loss is thus avoided. Making severance offsets available to all liable employers in that position should effectively reduce the cost of work injuries because, contrary to Claimant's argument, it appears that a reduction in workers' compensation benefits paid out should reduce future insurance premiums. This is so because premiums for insurance coverage for workers' compensation are based not only on the classification of the type of business and its annual payroll, but also on the company's prior experience modification or claims history. [10] The Pennsylvania Rating Bureau states that, Under experience rating insureds that maintained favorable loss levels in prior years receive a premium reduction ... while those with poor past loss experience are charged an increased premium. Commonwealth of Pennsylvania Rating Bureau, Pennsylvania Workers' Compensation Experience Rating Plan. Accordingly, any reduction in claims payout, including reductions resulting from severance offsets, should result in lower future insurance premiums for the privately-insured employer. The Commonwealth Court's decision requires insurers to pay benefits above and beyond that which the policyholders/employers would pay if self-insured. The Commonwealth Court's limitation of Section 204(a) not only differentiates between types of employers, but also disparately treats their employees. As this Court noted long ago in Brown, we do not believe that the General Assembly intended such a distinction between employers, and between claimants, on questions involving obligations and benefits. For the foregoing reasons, we hold that, in appropriate cases, all employers may seek an offset of severance payments against workers' compensation benefits under Section 204(a), regardless of whether the employer is self-insured or privately insured. Accordingly, Employer in the case sub judice was entitled to an offset in the amount of the severance payment made to Claimant.