Over the past two years, there has been a marked increase in the number and types of bills that aim to limit subrogation rights and recovery dollars. These bills could impact how claims are handled and may expose insurers to new areas of legal risk. For example, simply sending a notice letter to an individual who might be responsible for damages caused to your insured may violate several proposed statutes that seek to restrict or limit subrogation rights. Under some proposed legislation, sending a letter before your insured receives "full compensation" could lead to an "extra contractual" claim.
In the first quarter of 2011, seven states took up legislative proposals that would restrict, limit or potentially eliminate subrogation rights for insurance companies. As claims professionals, these bills will ultimately impact your company's bottom line and, more importantly, how you handle claims. Following is a short synopsis of each bill.
On February 23, 2011, the Connecticut General Assembly introduced a bill revising the sharing of recovery between an injured employee and his employer. When an employee brings an action against a third-party tortfeasor and recovers damages, the recovery owed to the employer shall be reduced by one third, which reduction shall benefit the employee. However, there is an exception for the state or a political subdivision when it is the employer. In such instances, the reduction will not apply.
Illinois Assembly Bill 3206 was introduced on February 24, 2011, and seeks to amend the Health Care Service Lien Act by proposing the following:
|Include subrogated insurers in the limitation of all liens (including unpaid hospital bills and doctor bills) to no more than an aggregate amount of 40% of an injured party's verdict, judgment, award, settlement or compromise.|
|Require specific written notice of the lien with service only by registered or certified mail or in person.|
|Bar or "prevent the creation of an enforceable lien" when a good faith payment to anyone other than the healthcare professional or healthcare provider is made prior to the service of the written lien notice.|
|Require healthcare providers to submit their bills to the injured person's insurer.|
|Limit a healthcare provider's lien to 66% of the amount that the injured person's insurer would have paid had the charges been submitted to the insurer.|
|Proportionally reduce any lien by the injured person's comparative fault or by the amount which the injured party is unable to collect due to limited liability insurance, etc.|
|Reduce a lien by a pro rata share of the injured person's attorney's fees and costs.|
|Bar recovery of any unpaid balance of a lien.|
This bill would limit recoveries by health, disability and casualty insurers providing medical payments coverage. The proposed bill clearly would result in reduced subrogation claims in the state since they are subject to reduction through other uncovered claims and bills.
Iowa Senate Study Bill 1133 and Iowa House File 410 (identical bills) were introduced on February 17, 2011, and referred to committee. From a subrogation standpoint, the bills seek to:
|Allow a UM/UIM insurer recovery rights only when the injured person's settlement or judgment, when combined with the UM/UIM payment, exceeds the injured person's damages|
|Require a UM/UIM insurer that pursues a subrogation claim to include the injured person's damages in the subrogation claim.|
These bills serve not only to limit UM/UIM insurer subrogation rights by effectively applying the "made-whole doctrine" but also seek to expand UM/UIM insurer responsibilities, should subrogation be pursued, by requiring the insurer to pursue the insured's personal injury claim as well.
The New Hampshire House of Representatives is considering a bill that would eliminate a workers' compensation carrier's current, absolute right to a lien on an employee's third-party recovery. Instead, the proposed law would allow the judge, arbitrator or commissioner to allocate the third-party recovery as well as any related attorney fees and costs between the carrier (or employer) and employee "as justice may require." In essence, the bill would allow the elimination of workers' compensation carriers' liens in whole or in part at the discretion of a judge, the Department of Labor or an arbitrator.
New Jersey Senate Bill 191 was enacted into law on January 28, 2011. The New Jersey law amends Statute 39:6A-9.1, Recovery from Tortfeasor, by adding the following language:
Any recovery by an insurer, health maintenance organization or governmental agency pursuant to this subsection shall be subject to any claim against the insured tortfeasor's insurer by the injured party and shall be paid only after satisfaction of that claim, up to the limits of the insured tortfeasor's motor vehicle or other liability insurance policy.
Two main issues are apparent in the bill. First, the amended language appears to give priority to the personal injury victim before the medical benefits provider, whether it is an insurer, HMO or governmental agency. Second, the amendment limits the responsibility of the tortfeasor up to the limits of that entity's liability policy.
As we have seen repeatedly, the law lacks clarity and precision. The "made whole" or "priority" language is confusing. The subrogation provider shall be paid only after the injured party's claim is "satisfied," which is a subjective determination. It is anticipated that there will be many questions as to when an injured party is satisfied. Additionally, the law limits the responsible party's payment to the limits of their liability policy. This new law discourages people from purchasing large limits or even sufficient limits of liability coverage since they have no exposure above their limits of coverage.
On January 10, 2011, the Oregon Senate introduced S.B. 372, which attempts to change its made-whole doctrine for personal injury protections (PIP) benefits. Oregon's current law, ORS 742.544, allows for a property and casualty carrier to be reimbursed for personal injury protection benefits only if the recovery exceeds "economic" damages. The proposed amendment would remove the word "economic" from the current law as follows:
A provider of personal injury protection benefits shall be reimbursed for personal injury protection payments made on behalf of any person only to the extent that the total amount of benefits paid exceeds the [economic] damages…suffered by that person.
The proposal attempts to broaden the definition of when an injured party is made whole. The amendment limits PIP benefit subrogation claims until the injured party has been made whole for both economic and non-economic damages.
In addition, the bill attempts to extend the time parameters in ORS 742.524 for the payment of PIP benefits for "all reasonable and necessary expenses of medical, hospital, dental, surgical, ambulance and prosthetic services" from one year to two years after the date of injury. The aggregate cap of $15,000 for all such expenses would remain the same.
The South Dakota legislature on January 27, 2011, introduced an anti-subrogation bill. The bill in its entirety states:
No insurer under this chapter is entitled to participate in any recovery from any tortfeasor on account of bodily injury or death or damage to property unless and until its insured has first been fully compensated as provided in § 21-3-1. The provisions of this Act do not apply to any workers' compensation insurer.
The proposed language attempts to bar an insurance carrier from any recovery until the insured has been "fully compensated," but the bill does not address what makes someone fully compensated so that subrogation may be pursued. This bill passed the House but fell short in the Senate.
Trends in Anti-Subrogation Bills
Understanding the trends in these bills can help you identify potential problems before they arise. Anti-subrogation proposals in most instances seek to legislatively enact the made-whole doctrine as the law of a given state. This doctrine, in simplest terms, requires the insured be made whole before an insurance company can make recovery. As with most legislation, the devil is in the details of how one defines "made whole." The proposed bills generally leave the term open to court interpretation or give an ever-expanding definition that effectively eliminates subrogation rights.
For example, the South Dakota bill gave no definition of what makes a person whole but prohibited any insurance company from participating in subrogation until such compensation level was reached. Could a claim professional send a letter to a responsible party putting them on notice when the insured's deductible has yet to be paid, or is that "participating" in a subrogation recovery? What about Oregon's proposed change to eliminate the word "economic" so that PIP carriers can only recover when all damages, including pain and suffering, have been recovered?
These anti-subrogation proposals seek to reduce recoveries to compensate attorneys hired by insureds to prosecute their cases. This concept is generally referred to as the "common fund" doctrine. Consider the New Hampshire bill: The legislature seeks to reduce subrogation recoveries for attorney fees "as justice may require." Does an auto medical payments subrogation claim have to pay the insured's attorney a fee when recovery is done through inter-company arbitration? The answer requires court intervention to determine if "justice" requires the fee or not. Does the subrogated entity have to pay a fee to their own counsel and a second fee to the insured's counsel?
The anti-subrogation bills and adoption may engender efforts to ensnare insurance companies into potential extra-contractual liability. Iowa's proposed H.B. 410 requires an insurance company to seek the injured party's own bodily injury damages beyond what they paid. This bill provides for "extra-contractual" claims if the carrier does not give recovery dollars to the insured when their subrogation attorney recovers. This sets up liability for carriers who take steps to recover through subrogation if they don't follow the rules.
Subrogation legislation may not be foremost in the mind of most claim professionals; however, the current trends and exposure for potential liability require that all insurance professionals stay abreast of the developments. Subrogation recovery dollars are important to the industry as a whole, and the proposed bills seek to reduce these recovery sources, stretching the industry even farther.
Daran Kiefer, of Kreiner & Peters Co. L.P.A., is the National Assoc. of Subrogation Professionals (NASP) Vice President, and Kammy Poff, of Allstate Insurance Company, is NASP's Amicus Chair.