The Law Firm of Terry Hummel

Apart from the actual total amount of the settlement or judgment which you obtain in a claim or lawsuit, the issue of subrogation is probably the most important factor in determining  how much of your settlement or judgment you will actually get to keep. Therefore, as a client you must be aware of it and the impact it will have on your case. It is also essential that your attorney is aware of all potential subrogation issues in your case and understands how to deal with them effectively. Many attorneys, especially ones that do not specialize in injury and death claims, do not have the knowledge or experience to properly handle subrogation matters, which can be highly detrimental to the client’s interests.

The term “subrogation” means simply that one party stands in the place of or is substituted for another party in a claim or lawsuit and takes over that party’s right to recovery money or property. As an example, if person A owes you money and they write you an IOU, then you give the IOU to person B with the understanding that person B now owns the IOU, person B now has the right of subrogation. In other words person B now has the right recover the money on the IOU in your place.

Subrogation originated as an equitable remedy created by the courts many years ago to create an ability to recoup a loss when no such right existed in the law. Now subrogation is pervasive as a contractual and statutory right which impacts almost every injury and death claim in this country.

Thirty years ago, in a typical injury case, a  client could suffer injuries requiring $30,000 worth of of medical treatment, all paid for by their medical insurance. Then the client could make a claim against the at-fault party for those injuries and the $30,000 of medical bills and receive compensation for those same bills all over again, in effect getting a double recovery for those bills. This might seem like an unfair bonus to the client except when other issues are taken into consideration. For instance, in most cases the client either directly, or as a part of their employment benefits, paid premiums to their medical insurance company which was contractually obligated to provide the coverage for those bills. In other words, those bills, though caused by someone’s negligence, were paid and treated the same as bills caused by a simple illness or an injury caused by no negligence. Another factor to consider is that clients are rarely fully compensated for their losses: (1) because juries, more often than not, will reduce their awards for a variety of reasons, including (a) pre-existing conditions, (b) comparative negligence of the plaintiff, (c) questions about the plaintiff’s motives, (d) unanswered questions about insurance coverage; (2) attorneys fees and expenses are deducted from the settlement or judgment, which can take anywhere from 30-50%.

Over the past thirty years, all sources of insurance have gotten wise to the idea that they could get back the money they spend for medical care, and even disability payments, for people who are injured by the negligence of others. Medicare and Medicaid did it by getting laws passed requiring parties to injury claims to reimburse them for any and all payments made for injuries suffered as a result of the at-fault party’s negligence. Medical insurance companies did it by including clauses in their insurance contracts requiring that they be reimbursed. Most people who have auto insurance also have coverage for medical expenses incurred as a result of a collision. Auto insurance policies universally contain clauses requiring they be reimbursed for expenses paid due to another driver’s negligence.

The burden of dealing with all of these claims for reimbursement ultimately falls squarely on the attorney representing the injured party, since the settlement funds are processed by them through their trust account. If the attorney and/or client fails to pay the amount claimed for reimbursement, they can be held liable and are subject to being sued for violating the law or breaching the contract. It is therefore incumbent upon the attorney to find out all sources of payments that the client may be receiving while the case is in process, then make contact with them, obtain periodic updates of the amounts paid and claimed for reimbursement, and confirm the final amount before settlement or trial. Failure to take these steps will, at the least, cause significant delay in resolution of the claim and disbursement of money, and at the worst, result in a malpractice claim when the client, and perhaps attorney, are sued.

Once the final amounts of the subrogation claims are confirmed in writing, a diligent attorney will discuss the impact of these claims with the client on their settlement or judgment and discuss possible strategies for minimizing the impact of these claims on the client’s bottom line. In many cases, Medicare, Medicaid, medical insurance, workers compensation, auto insurance, etc. are willing to consider reductions in their claims under appropriate circumstances. Personal injury attorneys are generally not obligated to negotiate reductions in subrogation claims since that is beyond the scope of their representation, which is to get a settlement or judgment from the at-fault party. Nevertheless, arrangements can be made where it can be advantageous to both the attorney and client to attempt to get such reductions. The circumstances where it may be appropriate to seek such reductions are: (1) client  is not made whole by the settlement; (2) client is receiving very little of the settlement or judgment; (3) bills being claimed were not for treatment of injuries caused by the at-fault party.

As a result of intervention of subrogation in personal injury claims, a settlement might look something like this:

• Total Settlement: $30,000

• Attorney Fees (1/3): -10,000

• Expenses: -3,500

• Auto Med Pay (Subro): -2,000

• Med Insurance (Subro/reduced from $8,000): -4,000

• Net to client: $10,500

Most people assume that juries that participate in personal injury and wrongful death cases have access to all information that is relevant to deciding the case. That is absolutely not true. In fact, some of the information that most people would consider essential to deciding  a case is deliberately kept away from juries by the Courts. For example, juries routinely want to know if the at-fault party in a lawsuit has liability insurance, and if so, how much. But juries are not permitted to have this information. This is because the Courts have created Rules of Evidence which for many decades have held that evidence of liability insurance, though relevant, is highly prejudicial to at-fault parties. The reasoning is that juries will adjust the amount of their compensation based on the amount of available insurance. In reality, that may be true. That is why juries routinely request access to the information. But judges will not give them the information.

But the real question is how are at-fault parties harmed by juries getting this information? If juries know how much insurance a party has, does that necessarily mean that they will award more than the appropriate amount for the case? Juries are given explicit instructions regarding the types of compensation that they are permitted to award by the Judges. Juries have a legal duty to follow those instructions or the decision can be overturned by the trial judge or it can be appealed. To award more than is appropriate for the case goes beyond compensation and becomes punitive, a type of damages which juries cannot award except in special cases and with specific instructions from the trial judge.

In the real world of jury trials, if jurors are uncertain whether the responsible party has insurance or how much insurance they may have, the jurors become reluctant to award the higher amounts being discussed by the jurors out of concern that the responsible party may be bankrupted by the award. Even if jurors assume that the responsible party has sufficient insurance coverage, many jurors will not award the higher amount under consideration out of concern that it will impact everyone’s insurance rates. Thus, it is the injured party that is harmed by not providing jurors with liability insurance information.

Insurance companies continue to vigorously oppose any attempt to allow juries information about the responsible party’s insurance coverage. They do this by arguing that jurors will go overboard with their awards if they think that the responsible party has a blank check to work with, i.e., the insurance company. But there is absolutely no evidence to support the claim that jurors would, on average, award more than is appropriate for each individual case. In fact, in cases directly against insurance companies, such as uninsured motorist claims, it is clear that jury verdicts are entirely appropriate to the damages in each case, on average. The real reason insurance companies want to keep insurance information from juries is that they know, on average, that juries award below the appropriate amount for each case for the reasons discussed above, which enhances their profits.

On the flip side, there is a similar rule of evidence that for many decades the Courts have enforced for the benefit injured parties. This rule, called “the collateral source rule”, prohibits juries from knowing about any insurance that the injured party has to assist them or compensate them for the injuries caused by the responsible party, such as medical, accident, disability, or sickness insurance. One reason for this rule is that if the jurors know that the injured party has already been compensated from some other source, they may decide that there is no need for the at-fault party to pay as well, since that could result in duplicate compensation. Thus, a jury might award little or nothing to the injured party.

There is another reason jurors were not permitted to know about the injured party’s insurance.  If the injured party paid for the insurance themselves, there is no reason that the at-fault party should benefit from the injured party’s financial efforts and foresight in purchasing the insurance.

In recent years, it has become apparent that the insurance industry wants their cake and our cake, and the Courts and Legislature in Ohio are more than willing to give them what they want. Insurance companies continue to vigorously oppose allowing juries access to liability insurance information, with which all Courts firmly agree; but they now insist that jurors have access to the injured party’s insurance information and that the collateral source rule is no longer enforceable. The Ohio Supreme Court and many Ohio appellate and trial Courts agree with them.

In 2005, the Ohio Supreme Court in Robinson v. Bates held that jurors were entitled to know, not only the total amount of an injured person’s medical expenses, but the amounts written off and the amounts accepted as final payment by the injured party’s medical providers. In so deciding the Supreme Court clearly contemplated that given such knowledge, jurors would obviously become aware of the existence and even the amount of the injured party’s medical insurance, exactly what the insurance industry wanted. The Supreme Court rationalized that the collateral source rule was not being eliminated by stating that “write-offs” are not “benefits” and the collateral source rule only excludes evidence of an injured party’s benefits. This reasoning deliberately ignores the fact that write-offs are generally negotiated by the insurance company as a direct benefit of the coverage, which together with the actual payments made, reduces what the insured individual pays. It also deliberately ignores the fact that knowledge of “write-offs” and “amounts accepted as payment in full” inherently leads to knowledge of the existence and amount of an insurance benefit.”

The other fundamental reason that the insurance industry pushed for the Robinson decision was that they believe that it is unfair to allow injured parties to claim the total charged amount of their medical bills as damages when in fact the injured party is only responsible for a portion of the bills after the write-offs are deducted. Therefore, if the injured parties are only responsible for $100 of medical expenses, that is the amount that juries should award against the responsible parties and which will be paid by their liability insurance coverage. It is hard to argue with the fairness of this argument. Nobody wants insurance companies to pay for damages that were never realized, including, believe it or not, injured people.

But the Robinson decision has created far more unfairness than it has solved. In personal injury cases it has created totally distinct, discriminatory, and indiscriminate classes of injured people. For example: (1) A person who has excellent automobile med pay coverage will get 100% of their medical expenses paid by their auto insurance company, in most cases.  A jury hearing this case will be forced to consider the total amount charged as damages. They will hear nothing about write-offs and they will not hear anything to lead them to believe that the bills were paid by the injured party’s own insurance. Based on this information a jury should compel the at-fault party to pay this person 100% of their bills, even though they were already paid.  Thus this person gets fully compensated by the at-fault party. (2) Under Robinson, a person who has terrible injuries and hundreds of thousands of dollars of medical bills, and absolutely no medical insurance, could get totally different results depending entirely on how their medical providers treat their bills. If the providers refuse to compromise their bills, the jury will only know about the total bill and presumably award the full amount. On the other hand, if the providers deem the bills uncollectible and the bills are completely written off, that same person could receive no award. (3) A person with good medical insurance which pays a high percentage of the total charges will be compensated by juries at a much higher rate than the person with Medicaid or Medicare which pays a lower percentage of the bills. (4) One person may have several different types of insurance coverage, including auto med pay insurance, which may pay 100% of certain bills, and medical insurance, Medicaid or Medicare, which may pay anywhere from 30% to 80% of certain bills. How is a jury to know what value to place on the different treatments if the reimbursement rates are so radically different? Most Courts have ruled that juries cannot consider any evidence to explain these discrepancies, but can only consider the amount charged and the amount paid, pursuant to the strict interpretation of Robinson.

The real tragedy of the Robinson decision is this: it is well known in the personal injury business that jurors value cases based in large part on the perceived amount and type of medical treatment received by an injured party, and whether the injured party has been burdened by the cost of that treatment. Because jurors  have been given inconsistent and misleading information about medical expenses and, by subterfuge, medical insurance, jury verdicts have been wildly inconsistent and substantially lower, exactly what the insurance companies intended.

I believe that the solution lies in one of two directions: (1) Go back to the old system and do not let jurors have any insurance information from either side. It is not highly relevant and it overly complicates trials. To prevent an injured party from being compensated for something for which they are not liable, give the evidence of the write-offs to the trial judge and let them deduct the written-off amounts from the verdict after it is rendered by the jury. (2) Give all of the insurance information to the jury on both sides to be fair to both sides, accepting that this will necessarily complicate the trial, but also accepting that most jurors assume or are aware that all parties have insurance and the charade of keeping them in the dark is an anachronism of the legal system.

The Ohio Legislature passed a law, RC 2315.20, in 2005 which should have made the Robinson decision a dead issue by prohibitng juries from receiving evidence of collateral benefits. Since then,many Courts in Ohio have ruled in favor of insurance companies that Robinson still controls since the write-offs, according to the Ohio Supreme Court, are not benefits.

By the way, there are many other things that jurors do not know: (1) how much are the injured party’s attorney fees and how are they being   paid? (it comes out of the judgment; usually 1/3) (2) how much are the injured party’s expenses and how are they being paid? (it comes out out of the judgment; amount varies greatly, but if experts are involved, it will be thousands of dollars) (3) who is the attorney representing the defendant? (an attorney provided and paid for by his insurance companyand who works almost if not entirely for the insurance company). The list goes on.

Until recently, injury and accident victims would go to a chiropractor for treatment of soft tissue injuries, but before commencing treatment most chiropractors would require that the injured person sign an assignment. An assignment is a contract under which the injured person agrees to pay the chiropractor’s bill out of the proceeds of any settlement or judgment obtained by them for their injuries. On the surface, this appeared to be a good thing for both the injured party and the chiropractor. The injured person had assurances that they could receive medical attention, even if they did not have insurance. The chiropractor had assurances that they would eventually get paid, even if  the injured person had no insurance available to pay their bill.

The problem with chiropractor assignments was that they essentially gave the chiropractor a blank check, since the injured person was signing away an unspecified amount of money for an unspecified amount of treatment. The chiropractor could then run up the charges with the expectation of being fully compensated when the injured person received a settlement or judgment. In many cases this meant that the injured person and their attorney could end up with very little to compensate them. Despite a number of challenges by personal injury attorneys in trial and appellate courts in Ohio, several courts continued to uphold the validity of the chiropractor assignments.

Very recently, however, the Ohio Supreme Court ruled that chiropractor assignments are unenforceable because they require injury and accident victims to sign away something for which no value has been established (their personal injury claim) in order to pay something for which no value has been established (the chiropractic treatment). This is a very significant and positive outcome for injury and accident victims because it restores more control over personal injury settlements and judgments to the injured persons and their attorneys where it belongs.