Using and Structuring Liability Policies

Using and Structuring Liability Policies

We have examined how medical payments can be used and structured to our benefit. Let us now examine the same above factual scenario (of the friends riding together to lunch and getting into an accident; assuming the same set of underlying facts) but now with respect to the liability policies involved, not just med pay. This is every bit as important to one’s overall case and overall recovery. [*NOTE: These principles are absolutely useful and relevant to motor vehicle accidents, but also to accidents of all kinds]. Several principles are explored here: reducing overall medical expenses to net more money; how to use, stack and structure underlying liability policies to your benefit, etc.

This is relevant to all factual settings: slip and fall accidents; premises liability cases, product liability cases, etc. We use the above previous factual setting simply for illustrative purposes, but also because motor vehicle accidents (including pedestrian accidents) are by far the most common type of accident. In our previous example you will recall, we have two friends riding together to lunch and they were struck by another vehicle; and injuries resulted causing $14,500.00 in medical expenses to one passenger.

Before we proceed too far in this discussion it is important to note the various types of potential coverages that might be used and might be applicable here. Initially, there is the liability policy (mandated by virtually every state) from the person who caused the accident. Second, there is (or could be, as this coverage is not mandatory) the UM/UIM [Uninsured Motorist/Underinsured Motorist] coverage which either the injured passenger could have; AND/OR the UM/UIM coverage from the “friend,” the driver of the vehicle the injured person was riding in. Either of which (or both) could be available to the injured party if their injuries were significant enough and the coverage of the person who caused the accident was insufficient to compensate you fully for your injuries.

In addition to this, either you the injured party, and/or your friend (the driver of the vehicle you were riding in) could have medical payments coverage – which both did – which you could use. [Neither med pay nor UM/UIM is mandatory, but added coverage and elective]. Remember, we cannot use defendant’s third party med pay (if any). Finally, there could be umbrella coverage (again; elective coverage, not mandatory) that you could avail yourself of if you had it [or your friend, if any]; IF your injuries were significant enough and the underlying coverages were inadequate.

For instance, let us assume the circumstances were somewhat different, and you were riding as a passenger in the vehicle of a friend who caused the accident, and they also had UM/UIM coverage. As such, you certainly could pursue the 3rd party coverage since they were at fault. But, as a guest passenger in the vehicle, the UM/UIM coverage would (theoretically) also be available to you, as would any available med pay. Unfortunately, you cannot go after both from the same policy, you must elect one or the other. The law frowns on this and considers this a double recovery, from the same policy and for the same injuries. You must elect one coverage or the other; sometimes this is easy, but other times not so. In many cases, someone may have higher coverages under one provision; say because it was a leased vehicle requiring at least $100K/$300K liability coverage, but they might only have $15K UM/UIM coverage, and thus you would elect the higher limits of the 3rd party liability policy.

However, your friend (the driver) might have the same limits, perhaps a relatively modest coverage of $25K/$50K for the 3rd party and 1st party coverage as well; but in this scenario he hit a car with four people in it, who will all now be trying to cut up the $25K/$50K 3rd party policy; FOUR WAYS! Whereas you, as the only passenger in his vehicle, as well as your friend [if he HAD a UM claim] could split the $50K aggregate limit amount; meaning each of you could pursue up to the single person limit of $25K. Plus, if you pursued the 1st party limits, you could also use the Med Pay coverage, which you could NOT if you proceeded under his 3rd party policy limits. There are many considerations, just realize you would have options in this situation.

The above list is not exhaustive, but merely lists the normal coverages which might, and often are, involved in a motor vehicle accident. There certainly are, or can be, other policies that could be brought into play when factors warrant this. In fact, sometimes even Workman’s Compensation can even be involved in a motor vehicle accident (or other type of accident) if the injured person was at work at the time and was in the “course and scope” of their employment duties (not on some personal errand). For example, cab drivers, bus drivers, a traveling salesman, etc. As such, the potential for wide and varied types of insurance policies to be involved is there. Do not limit yourself in thinking about the accident or how to approach it.

As to our previously discussed factual scenario, let us assume that the person causing the accident had the state mandated minimum $15,000.00 policy (generally listed as $15K, $30K, $10K; meaning: $15,000.00 per person maximum single person injury limit; $30,000.00 aggregate for the entire accident, regardless of the number of passengers; and $10,000.00 in property damage). Further, let us assume that your friend driving the car had $25K/$50K UM/UIM coverage. (It is always listed together as UM/UIM, even though they are slightly different things. UM [Uninsured Motorist] coverage is for when there is no third party insurance at all, and UIM [Under-Insured Motorist] coverage is for inadequate third party coverage, which cannot fully compensate a person for all their injuries). Insurance companies do not allow you to carry higher UM/UIM limits than your liability coverage, so if you want high UM/UIM limits, you must carry equally high third party liability limits. You do not have to carry MedPay at all.

UM/UIM is some of the best coverage around, and ensures that YOU are covered no matter what anyone else may possess. Very important coverage to have. Umbrella coverage may be the very best coverage to have. On a dollar-for-dollar and pound-for-pound basis, without a doubt the best coverage you can possess. Insurance companies impose some restrictions, like you generally must have maximum UM/UIM coverage as well as your homeowners with them to obtain this umbrella coverage. But this will ensure that you have adequate coverage for all but the most catastrophic of accidents. Even though these coverages may cost a little extra, but it is worth it. When you REALLY NEED coverage, serious coverage, it had better be there. Many people have serious accident injuries, and could recover potentially millions, but often have inadequate coverage. This is unfortunate, and you simply cannot count on other people insuring you. Even if you paid $2,000.00 per year in premiums for years; in a serious accident you could receive all of this back you ever paid in (for twenty or thirty years aggregate) times a factor of 20.

Finally, let us assume that you had $100K UM/UIM coverage. In our previous discussion, we had neck injuries and $14,500.00 in medical bills. (When we discuss “medical bills” we discuss what is essentially the “full retail” amount of the bills, not the reduced amount that Medicare or our health insurance paid. The opposing insurance company is not entitled to consider these reductions or argue for them by reducing the amount of your demand accordingly. It is, and was, YOUR insurance coverage that YOU paid for. A defendant (or his insurance company) cannot in effect receive a “windfall” and a reduction in the claim amount, simply because you happened to have health insurance (and because the health insurance company negotiated lower capitated rates). So you also use, quote and argue the FULL retail amount of your medical bills, and this is acceptable and the legal norm.

Further, remember that there is subrogation, and that you WILL have to pay back the medical insurer. Thus, we should never allow, or listen to, an insurance company arguing for, or trying to take advantage of, the fact that you may possess health insurance. Specifically, even if there was a reduction, you must reimburse the medical insurance, so it is almost like you double pay. [Not only is the opposing insurance company complaint not relevant, and something they are not allowed to inquire into or argue at trial; but it is something that YOU paid for and must pay back through subrogation. Therefore, do not allow opposing insurance companies to argue for reductions in your medical specials (bills) because of your health insurance payments!] However, rest assured, an insurance company will still try. If an insurance company can get away with something, anything, they will attempt to. Less knowledgeable, less informed plaintiffs might fall for this argument. Don’t you.

In our original scenario you were injured and underwent physical therapy for your injuries for

In our original scenario you were injured and underwent physical therapy for your injuries for C7, and then you saw an orthopedic surgeon who recommended surgery for you. This scenario illustrates a few points. First, your damages are not simply confined to “actual” damages, but also encompass “future” damages (your needed future surgery, etc.). Often, this is the biggest component of a personal injury case or trial. We know you had $14,500.00 in ACTUAL “medical specials” (as they are termed by insurance companies).

“Special damages” are enumerated damages such as medical bills, wage loss, etc; (and these are different from “General damages;” such as pain and suffering); but you now also require a neck surgery, which our orthopedic surgeon estimated at $111,200.00; which covers the surgeon and assistant surgeon fee, the hospital, the surgical hardware, post operative physical therapy, etc. You can see in this instance, the future medicals [the needed future surgery] is significantly larger than the rest of the damages, the “actual” damages – and this is very analogous to most personal injury cases. (Ultimately, will the complete surgery cost this much? Probably not. Will we pay this much? DEFINITELY not! This figure is mainly used for the opposing insurance company’s consumption).

This brings your “medical specials” to a total of $125,700.00 (actual and future); and you also missed 6 weeks of work at $800.00/week ($4,800.00 total). If surgery is undergone, there would obviously be further wage loss, perhaps as much as 6 months worth. This certainly could be argued for as well. Thus, we have special damages alone in excess of $130K (actual and future damages and wage loss), and if we argued for future wage loss that would add approximately $21,000 more, raising the total to over $150K in special damages. “General damages” are generally considered by an insurance company (or judge, jury, or arbitrator/mediator), to be some rough factor multiplier of this figure (perhaps 2, 3, 4 or more times this figure).

As such, we would compile all of the medical bills and write a demand letter to the respective insurance companies involved and give them say, thirty days (the usual) to respond. Likewise, we would normally deal with the third party tortfeasor insurance company first, then the driver’s insurance company, then your company, etc. in that order. However, sometimes this protocol may be skipped. For instance, if we knew the limit and size of the respective policies, we could (and probably would) submit all of the demands simultaneously. The reason being that the size of the claim is quite likely in excess of $250K and perhaps as high as $500K or more.

All of the policies combined only equal $147,000.00. ($15K from the 3rd party; $25K from the friend’s UM/UIM policy and $2K in med pay, and you have $100K UM/UIM and $5K in med pay. Med pay IS counted by insurance companies when figuring out the appropriate offset, although there is no subrogation component to this coverage, it is essentially free. Regardless, $147K is a small recovery as against $130K in special damages. Here one would net less than $20K for general damages (pain & suffering, etc.) – if no reductions were made on the claim. As presented to the insurance companies [again compartmentalizing our information] they would look at this and think this person is walking away with very little overall compensation; AND if they denied this claim and went to trial they would very likely get hit for a large verdict several times their policy limits. [Notwithstanding any possible “bad faith” exposure as well]. They would very likely settle all of the respective claims.

The reality of what you would actually net out of the situation would be somewhat different though. If the surgery were undergone, and all of the respective medical bills were processed under Medicare, the roughly $125K would most likely become about $25K, no more than $30K. The medical providers would be forced to write off the remainder of their medical bills. Let us assume $30K for our Medicare lien, and we negotiate a 1/3 subrogation lien reduction with Medicare. As such, we would end up really owing only $20K out of the overall settlements in subrogation fees for paid medical bills. Once we applied for the med pay (payable to ourselves, not some other third party, so that WE could take advantage of the Medicare and subsequent subrogation lien reductions), we would gross $147K and need to pay $20K out, netting $127K. THIS, is not a bad net at all for such an injury. If surgery were not undergone, one would net even more.

Normally, EVEN IF we hired an attorney, and EVEN IF he could get $300K (there is not even that much coverage here); by the time he took his 1/3 fee; and then paid the medical bills on a “lien” (where the doctors agree to hold their billings until settlement or trial), the “lien” bills usually get paid in full or maybe a 20% reduction; one would net FAR LESS. All of these facts assume the limited insurance involved. IF either you or the driver had even a basic umbrella policy (starting at $1 million), a much stronger recovery could be had. This factual and accident scenario is by NO MEANS far fetched, these types of injuries and medical bills happen every day.

An important point to note is that while in this scenario, most likely all of the carriers would tender their respective policy limits. However, this is not always the case. Sometimes, one of the carriers will refuse to settle, even if settling makes sense; and even if it appears they might get hit with a significantly larger verdict. This can be the fault of an adjuster, or simply the policy of the insurance company involved or the self-insured entity. (Many large business entities; usually multi-billion dollar entities – are either “self insured”, or have large “self insured retentions,” [S.I.R.’s] in effect very high deductibles, that they manage and pay themselves). Thus, only if a claim exceeds that amount [of the S.I.R.] does the insurance company become involved.

Sometimes, insurance companies do as they please, and often appear to have an “axe to grind.” They make decisions which transcend mere dollars and cents decisions concerning a particular claim. For instance, many casinos or large shopping chains will often spend many times what it would cost to settle a claim, just to litigate the claim; to “send a message.” There is a policy consideration involved, as certain companies do not want to be seen as “soft” (i.e. companies that settle every claim). Thus, they wish to set a precedent, and set the tone for future claims and claimants. They want it known that IF someone gets hurts there, they can COUNT ON fighting this matter tooth and nail and needing to retain an attorney and going to trial. This type of corporate policy, often separates the wheat from the chaff and most attorneys learn quickly and will not take a case against this entity unless it is a VERY STRONG one!

As such, if the factual scenario above happened, it is not always certain each of the carriers will agree to settle. This does not necessarily stop you from moving on or collecting from the other involved insurance companies. For instance, let us say that in the above case of you and your friend going to lunch together (with $14,500.00 in medical specials), that the third party tortfeasor’s insurance company wished to settle for their $15,000.00 policy limits; but that for whatever reason, your friend, (the driver’s) UIM insurance company did not wish to tender any part of their limits.

In many jurisdictions you would not be precluded from pursuing other policies. For instance, since the 3rd party tendered limits, we could now pursue our OWN UM/UIM limits, effectively skipping your friend’s policy (for now). This would mean, that when presented to your own policy we would simply have to show the policy limits that we DID receive; as well as the offset for the policy that was NOT tendered to you (the next in line to you).

This would work like this: $15,000.00 was received from the 3rd party insurer; then we would allow for a $25,000.00 OFFSET for your friend’s policy which did not/would not tender their limits; then apply the $2,000.00 med pay that was received from the same policy (often they will tender med pay, even though they may not tender their liability or UM/UIM limits, since med pay is applicable irrespective of fault, even if you are the at-fault party); then you would allow for the $5,000.00 which was received by your own med pay policy) before the UIM could be applied for.

Thus, you could present to your own carrier for your own UIM limits (even without obtaining all intermediate policies first), however the AMOUNTS of the policies would still be offset against or counted. Therefore, before your policy would consider paying UIM, they would count that you had already received $47,000.00 in policy limits before evaluating your claim. [$15K 3rd party; $2K med pay; $5K med pay; and $25K UM/UIM offset – even though this amount was not actually received yet, and will need to be litigated for).

As such, if your claim were worth $50K, you would be paid $3K additional by your own carrier. If the claim were worth $75K, you would be paid $28K additional money. Only if your claim were worth in excess of $147K would you be able to collect the entire $100K UM/UIM limit. [* Recall also the earlier discussion about “stacking.” If any of the UM/UIM policies allowed stacking that could be used, or offset against, as well as any possible umbrella policy] Thus, one MAY collect policies concurrently or out of order, but the opposing insurance policy is always allowed to argue for and count the offset that would apply. So, do not take a denial by one insurance carrier as a bar to pursuing any others.

In a strange way, this can even work out to be a positive, as it gives you some now money but also allows for litigation later over the remaining policy(ies). If the refusal/denial came from a UM/UIM carrier, you could then pursue a bad faith claim. If the company that refused to settle was the third party policy, when you sued them it would be for the ENTIRE VERDICT AMOUNT (plus pre-judgment interests, attorney fees, etc.); and they would NOT be allowed to argue later for offsets against ANY amounts you previously collected from the UM/UIM policy(ies). This is considered your insurance that YOU paid for. It would be improper for the third party to both deny your claim thus forcing litigation; yet later attempting to benefit from that denial by arguing for an offset from the very insurance that you paid for. Therefore, they would be on the hook for the FULL VERDICT amount, regardless of what you had previously received.

Recall also that you may collect from four or more insurance policies (providing your injuries warrant it). Initially from the third party driver and if he happens to be borrowing the car he is driving, from the car owner’s policy. Likewise, you could collect from your own UM/UIM and if you happen to be riding in a vehicle, that UM/UIM policy for that vehicle as well — along with any potential umbrella policies that either UM/UIM policy happens to be tied to, or any other applicable policies). There may be other policies that could be pursued as well. This is driven by accident severity, overall injuries, special damages and the factual setting. Thus keep an open mind and realize you may be able to pursue numerous parties under various theories of negligence. Likewise realize, that when arguing “CLAIM VALUE” to an insurance company, it is a very open and nebulous thing. Nothing is “hard and fast” or written in stone about it.

To some degree a little research can help you determine values; some of it is also driven by overall medical specials; just as some is driven by the type and severity of the injuries and their permanence in nature, etc. You can research similar cases and what they have settled for; or use a “valuation service” like JVR (Jury Verdict Research – Appendix 1) to help you arrive at an appropriate number. Remember, to some degree it is guess work. Further realize, that no matter what you ask for; even if you had a $1 million claim and were seeking only $5,000.00, most insurance companies would try to get you to take $3,000.00!

Their job is to always minimize claims costs and expenses, no matter what. To “stop the bleeding” of cash. They DO NOT care about you and they DO NOT care about your claim, or how injured you are. They are only concerned with how much it takes to resolve the claim. Therefore, keep an open mind when pursuing claims as to “overall value,” however that number may be derived. There is no “right answer” here. You always get AS MUCH as you can get, and the insurance company always seeks to lower this number. Finally, recognize that personal injury cases may have several avenues of recovery, and sometimes multiple defendants. Do not limit yourself or your thinking, be creative.


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