Personal Injury Protection (PIP) Offset

In Texas automobile policies where the insured has opted to purchase uninsured motorist (UM) coverage, there is an offset for amounts paid under the PIP coverage.

The basis for the PIP offset can be found in the policy language of the uninsred/underinsured motorist policy provision, which provides:

In order to avoid insurance benefits payments in excess of actual damages sustained, subject only to the limits set out in the Declarations and other applicable provisions of this coverage, we will pay all covered damages not paid or payable under any workers compensation law, disability benefits law, any similar law, auto medical expense coverage or Personal Injury Protection Coverage.

Under this provision in the Texas Personal Auto Policy, it appears that an insurer has the right to receive a credit of the amount of PIP benefits paid if any UM benefits are otherwise owed.  The PIP offset, however, will be allowed only if the insured’s actual damages are less than the combined PIP and the UM policy limits.  The PIP offset may not be taken if the offset would prevent the recovery of actual damages suffered by the insured or if the offset would reduce the UM protection below the minimum limits required by the UM statute.  This was made clear in the 1999, Texas Supreme Court opinion, Mid-Century Insurance Co. of Texas v. Kidd.

For many years Texas courts rendered inconsistent decisions when evaluating the applicability of the PIP offset language in the UM statute and in the UM coverage.  The decision in Kidd constitutes the most definitive articulation of this legal issue and that decision implicitly overruled a number of lower court decisions decided over the past 20 years.

The Kidd decision articulated several factors necessary to evaluate the applicability of the PIP offset.  First, “to the extent UM/UIM covered damages do not overlap the PIP covered damages — for example, damages proximately caused by the insured’s own negligence — there is no corresponding PIP credit.  Additionally, the court held:

The policy limits are applied after – not before – deducting the PIP credit.  If an insured’s actual damages less PIP credits exceed the UM policy limits, then the insured recovers the maximum possible UM benefits.

Under Kidd the only effect of the PIP offset provision is to bar double recoveries.  The court recognized: “the offset provisions does not prevent stacking of the UM and PIP protection to cover actual damages.”