In this post, I discussed what subrogation is. I also explained, in my practice, that because of this right (and usually, language in the contract) health insurance companies today now claim a lien on settlements to the extent of the health insurance company’s payments.
At first blush, it makes sense: if an insurance company has paid money for something that the insured is eventually compensated for some other way, why should the insured get paid twice for the same thing?
If it was this cut and dry it would make sense. But, things are rarely cut and dry.
Let’s go back to historical England. In my ship hypothetical, the court is being asked to decide who gets the cargo. The insurance company wants it; the owner wants it. The insurance, in essence, tells the court, “we paid for it, now the owner is going to get both the price of the cargo AND the cargo, that’s not fair!” The owner responds: “insurance only paid for part of it. I had to pay a premium, deductible and the insurance payment didn’t pay the full value of the merchandise. I’m not getting twice the value by receiving the payment and the cargo. This is why I paid the insurance premium. To cover me in case of a loss. That’s their business, and they make lots of money for most years when there are no losses.”
The Court, considering these arguments, created the “made whole” doctrine.
As I understand it, the court reasoned that, while the insurance company has a right to a claim on the cargo, the insurance company could not actually receive the cargo (or be reimbursed the insurance payment) unless the owner was made whole. Meaning, once the owner actually received the full value of the cargo, then the court would allow the insurance to recover the cargo (or be reimbursed what the insurance had paid to the owner).
The idea of “made whole” obviously translates to people who have been injured in accidents. While we’re not dealing with the value of the cargo, we are still dealing with losses. Typical losses for people injured in an accident are past medical expenses, past lost wages, future medical expenses, future lost wages, loss of household services – including payments to others for performing these services such as cleaning, yardwork, cooking, etc –, and pain and suffering.
The Montana Courts have applied the made-whole doctrine to insurance company’s claims…
In the same way that it didn’t seem fair for the insurance company to take the cargo until the owner was completely reimbursed for the loss of the cargo; it doesn’t seem fair for the health insurance company to be reimbursed for its payments until the injured person is put in the same position as before the accident.
For example, something we see a lot is auto accidents. In Montana, the law only requires people to carry $25,000 in liability coverage. Let’s say that someone is injured in an auto accident and the at-fault party only maintained $25,000 in coverage. And that’s all the insurance available. The injured person incurred $10,000 in past medical expenses (for which health insurance paid). The injured person incurred $5,000 in lost wages. The injured person will continue to incur medical expenses, probably $1,000 per year for the rest of his/her life – which is another 55 years; and future lost wages, too. There was a question about whether the third party was actually at fault for the accident, so the injured person hired a lawyer. The injured person also has to pay the lawyer’s costs and fees. That’s not to mention the injured person’s pain and suffering and loss of household services.
In this scenario, it is not fair for the health insurance company to get reimbursed the $10,000. The injured person will never receive all the lost wages (both past and future), future medical expenses, pain and suffering, lost household expenses, and attorney fees and costs.
Montana provides a lot of protection for its citizens. The Montana Courts have applied the made-whole doctrine to insurance company’s claims, like the scenario above. In fact, it’s not just the courts that have applied the made-whole doctrine, but the legislature (for certain government plans) in the Montana Code: “[t]he insurer’s right of subrogation granted in 2-18-901 may not be enforced until the injured insured has been fully compensated for the insured’s injuries.” MCA § 2-18-902.
BUT, even in Montana, whether the person in my scenario will receive the benefit of Montana’s made-whole doctrine – or be responsible for paying back the health insurance company despite this – depends on several more factors.