The Road to Recovery

Given the number of drivers in Florida, it may be surprising to read that domestic policies are only required to provide a single coverage for bodily injury. Personal Injury Protection (PIP) is a $10,000 statutorily mandated no-fault coverage designed to compensate the named insured, authorized drivers, and/or passengers in the insured vehicle for 80 percent of their reasonable medical expenses.

Medical payment coverage (medpay) is an optional no-fault coverage designed to pay the remaining 20 percent of submitted medical expenses. Unlike PIP, there is normally a right of subrogation and/or reimbursement for medpay—but it’s one that is wrought with obstacles. There are two major hurdles that carriers commonly encounter when they seek subrogation recoveries: a failure to comply with the collateral source rule, and a release that bars recovery from third parties.

Collateral Source Doctrine

The initial letter of representation from the insured’s counsel often contains language that requires a carrier to take affirmative action to avoid waiving the right of recovery. Pursuant to Florida Statute Section 768.76(6), claimants (deemed insureds under the policy) are required to send correspondence to a collateral source provider (e.g. the automobile carrier) regarding notice of their intention to recover damages from the tortfeasor. This letter must be sent via certified or registered mail to comply with the statute. The correspondence shall contain a statement that the carrier will waive the right to subrogation and/or reimbursement unless it sends a statement to the insured and/or insured’s counsel identifying the payment of benefits and asserting the right to recovery within 30 days from receipt of the notice.

It is routine practice for an insured’s counsel to include a voluminous list of requests and slip in the waiver notice at the end. Upon identification of the waiver language and confirmation that the letter complies with the statute, calendaring procedures for responding to the request must be implemented on a departmental level. A letter providing notice of the carrier’s intention to preserve the right of subrogation or reimbursement must be sent to the insured and/or insured’s counsel, along with documentation reflecting the amount of collateral source payments.

The benefits of this practice reach beyond Florida, as other jurisdictions have similar mechanisms in place for the recovery of medical payments. For example, in Oregon, an insured is required to provide notice of an intention to recover damages from a third party to an insurer. Within 30 days from receipt of the letter, the carrier must provide a written notice of its intent to place a lien on any recovery to the insured and opposing party by personal service or by registered or certified mail. If the carrier fails to provide timely notice, then it is forced to either arbitrate the matter or file suit.

Release as a Bar to Subrogation

There are many instances in which the tortfeasor’s carrier agrees to an early settlement with the insured who executes a general release of liability. As addressed in Ortega v. Motors Ins. Corp. and Dadeland Dodge Inc. v. American Vehicle Ins., Co., a release executed in favor of an alleged tortfeasor bars a claim for subrogation brought by the insurer unless the tortfeasor had actual and/or constructive notice of the collateral source provider’s perfected subrogation right (i.e., the claim was paid by the carrier in full) prior to the execution of the release.

The carrier should take a two-pronged approach to lessen the likelihood of a barred recovery. First, the claim acknowledgment letter must identify the pertinent policy language prohibiting the insured from taking any action to prejudice the carrier’s right of subrogation. Include a statement, in bold type, that insureds should not execute any releases prior to contacting the carrier, and insureds should provide the contact information for their counsel. Once counsel is identified, immediately provide them with notice of the lien, which must be resolved at the time of settlement with the tortfeasor. If the case has been settled, request a copy of the release to determine if the insured contractually agreed to satisfy all liens and indemnify the defendant.

Second, the carrier should send a letter to the tortfeasor and/or their counsel providing notice of the perfected subrogation claim. Be certain to carbon copy the tortfeasor’s carrier on the correspondence. If a release is signed, the notice letter can be used as an exhibit in a motion, response, or at trial to overcome a waiver of liability defense. Importantly, this practice should not be limited to Florida, as numerous jurisdictions—including New York and Texas—have adopted the position articulated in Ortega and Dadeland.

Florida law allows for reimbursement of recovered collateral source benefits from a tortfeasor, less the pro rata share for the costs and attorney’s fees incurred by the insured. However, a claims professional must be prepared for the insured’s counsel to demand waiver of the medpay lien since the insured was not made whole.

Florida’s version of this doctrine states that in a limited-fund scenario, the carrier is not entitled to a recovery unless the insured’s damages have been fully compensated by the third party. An overarching consideration is whether the demand for waiver of the medpay lien is in conjunction with a receipt of a policy limit tender from the tortfeasor’s carrier(s). If the limits have not been tendered, then the claims professional must inquire into the basis of the reduced offer (e.g. comparative negligence). Normally, the insured’s counsel is amenable to negotiating payment of a reduced medpay lien—that is, of course, if the claims professional has avoided the obstacles to a recovery.