Insurance Repayment

Repayment to insurance companies

When a person buys insurance, the last thing that he or she expects is that the insurance company might be entitled to repayment under some circumstances. In many states, however, it is legal for an insurance company to get part of the settlement or money paid under a judgment! The general rule is the victim must repay his or her own insurance company and government sources of payment such as Medicare, but that the dog owner is never required to repay anyone. However, an insurance company's right to repayment is often limited by statutes or common law doctrines, so victims must always seek the assistance of an attorney when their insurance companies assert a right of reimbursement.

The dog owner does not have to repay his or her insurance company.

The defendant's insurance company defends and indemnifies the defendant under some type of a third party liability coverage, whether it is homeowner insurance, landlord's insurance, commercial general liability insurance, or another kind of insurance. Liability insurance policies do not require any form of repayment by anyone; if the insurance company pays benefits under the policy, neither the defendant nor the victim have any obligation to repay the insurance company. Medical payments and property damage payments paid under the defendant's policy also do not require repayment. There are no exceptions to these rules.

Repayment of medical bills to insurance companies for the victims

If applicable state law permits it, when a claim is resolved by settlement or judgment, the victim (not the defendant) may be required to repay health insurance payments made under the victim's policy. This generally is limited to medical bills, and there are exceptions to this rule. HMO's also require repayment by the victim (not the defendant).

This right of recovery is created by a section of the insurance agreement generally called the "third party liability provision." It also exists in the law of California any many other states as a right of "subrogation" which is applicable to certain claims (not all).

"Subrogation is the insurer's right to be put in the position of the insured, in order to recover from third parties who are legally responsible to the insured for a loss paid by the insurer." Barnes v. Independent Auto. Dealers of California (9th Cir. 1995) 64 F.3d 1389, 1392.

"Where a subrogation provision exists, an insurer may recoup its payments directly from the tortfeasor or from the proceeds of the insured's action against a tortfeasor. " Pacific Gas & Electric Co. v. Superior Court (1994) 28 Cal.App.4th 174, 183.

Furthermore, sometimes the patient gives the doctor a document called a "lien" or an "authorization to pay health care provider", which the victim's attorney often countersigns. This is another method of giving the insurer a right of reimbursement.

Payments made by employers are governed by statutes like California Labor Code sec. 3860, subdivision (b), which requires reimbursement and is not subject to reduction except where attorneys fees and costs are involved. (Gapusan v. Jay (1998) 66 Cal.App.4th 734 , 78 Cal.Rptr.2d 250.)

Insurance companies never tell injured people that the right of recovery, however so created, is subject to exceptions:

In most cases, no repayment is required unless and until the victim receives money by settlement or judgment. The exception is where the "lien" or "authorization to pay health care provider" explicitly requires payment even if no money is received by the victim.
California, certain other states, and federal common law forbid insurance company reimbursement unless the victim has been "made whole" by the size of the recovery. (See below.)
Some states forbid reimbursement or subrogation under some circumstances. For example, Illinois does not allow an insurance company to obtain reimbursement from a minor's bodily injury claim. (Estate of Woodring v. Liberty Mutual Fire Insurance Co. (1979) 389 N.E.2d 211, 71 Ill.App.3d 158.)
When repayment is required, the victim's attorney usually is successful in obtaining a reduction of the amount that must be repaid, for the simple reason that the insurance company has profited from the attorney's services in obtaining the settlement or judgment, and therefore fairness dictates that the insurance company must give the victim a credit equal to the attorney's fee (and a proportionate share of the costs of recovery). Another reason would pertain to liability: if the chance of proving liability is only 50%, then the claim might settle at 50% of its value, and therefore the insurer should reduce its lien by the same 50%.

The "make whole rule"

The "make whole rule" is a feature of California common law and federal common law, and the laws of certain other states (see, for example, OCGA § 33-24-56.1, which is the statutory enactment of the "make whole rule" in the State of Georgia). The insurer cannot recover payments made to the victim unless the latter has been "made whole."

"It is a general equitable principle of insurance law that, absent an agreement to the contrary, an insurance company may not enforce a right to subrogation until the insured has been fully compensated for [his or] her injuries, that is, has been made whole." Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533, 536.

Thus, when an insurer elects not to participate in the insured's action against a tortfeasor, the insurer is entitled to subrogation only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor. (Plut v. Fireman's Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104-105; 16 Couch, Insurance, supra, § 61:47, p. 130; Ortiz v. Great Southern Fire & Cas. Ins. Co. (Tex. 1980) 597 S.W.2d 342, 343-344 [citing cases from several jurisdictions]; Texas Farmers Ins. Co. v. Seals (Tex.Ct.App. 1997) 948 S.W.2d 532, 533-534; Motor Club Ins. Ass'n v. Bartunek (1995) 3 Neb.Ct.App. 292, 293-296 [526 N.W.2d 238, 240-241].)

However, some companies, such as Kaiser, have clauses in their agreements that override the "make whole rule." (See Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, cited in Sapiano, supra, 28 Cal.App.4th at p. 538; the plan in that case explicitly provided: "Health Plan (or its designee) shall be entitled to the payment, reimbursement, and subrogation as provided in this Section C(1) regardless of whether the total amount of the recovery of the Member (or his or her estate, parent or legal guardian) on account of the injury or illness is less than the actual loss suffered by the Member (or his or her estate, parent or legal guardian).")

Furthermore, the "make whole rule" does not apply to liens granted to providers of emergency medical care (see California Civil Code sec. 3045.1).

The law of the state where the victim lives must be researched thoroughly because some states have statutes that are very specific. An example is Georgia, which has a detailed law governing all aspects of reimbursement by insurance companies. (OCGA § 33-24-56.1.) The Georgia law effectively prevents reimbursement except by the government.

Repayment to Medicare and other governmental programs and agencies

The victim must repay Medicare and most similar public aid programs. However, they usually will reduce their bills. For example, MediCal is not allowed to take more than one-half of the recovery.

However, certain government agencies do not reduce their bills. For example, the federal government refuses to do so. This should be changed because it is very unfair to the victims, who are federal employees and members of the armed forces. Also, in principle it is patently unfair, because the government, which has more money and more lawyers than anyone, gives itself a "free ride" on the coattails of the victim and the victim's attorney, because the government doesn't pay one penny for the time, inconvenience, effort and costs of collecting the settlement or judgment.

Payment to hospitals and physicians

Although the rights of hospitals are a bit different from the rights of insurance companies, they share a common element, namely that the hospital's right of payment also may establish a lien on the settlement or judgment.

A hospital frequently is required by law to provide medical services to victims without advance payment or even the making of payment arrangements. To assist hospitals in collecting amounts owed to them for providing treatment, therefore, the laws of many states give hospitals a statutory lien on settlements, judgments and any other kind of payments to the victim when the latter makes a claim. In most states, however, these liens are subject to technical requirements pertaining to form and notice, and are limited in amount. (I.e., in California, CIVIL CODE SECTION 3045.1-3045.6.)

Physicians who render services under a health care plan also have a lien that in most states is subject to similar technical requirements and monetary limitations. (I.e., in California, CIVIL CODE SECTION 3040.)

www.dogbitelaw.com and each of its sections, including Dog Bite Law , The Dog Bite Law Adviser and the foregoing text, are (c) 1999-2005 Kenneth Morgan Phillips. All rights reserved. Reproduction in whole or part prohibited except where advance permission is granted in writing.