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INFORM+INSPIRE The Griffith Insurance Education Foundation DEMYSTIFYING SUBROGATION Nashville, TN November 21, 2013.

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Presentation on theme: "INFORM+INSPIRE The Griffith Insurance Education Foundation DEMYSTIFYING SUBROGATION Nashville, TN November 21, 2013."— Presentation transcript:

1 INFORM+INSPIRE The Griffith Insurance Education Foundation DEMYSTIFYING SUBROGATION Nashville, TN November 21, 2013

2 Subrogare virumque cano With apologies to Virgil’s Aenied. “Arma virumque cano” Of arms and men I sing. The Griffith Insurance Education Foundation

3 SUBROGARE  Lat. In the civil law.  To substitute ; to put in the place of.  The substitution of one party for another as a creditor; the process by which a person who pays a debt for which another is liable succeeds to the rights of the creditor to whom he pays it. The Griffith Insurance Education Foundation

4 Or, most commonly, by virtue of paying the debt owed by a tortfeasor (negligent party) to the victim, the insurer stands in the shoes of the victim. The Griffith Insurance Education Foundation

5  The right existed in the Code of Justinian and was reputedly moved into common law jurisprudence by The Griffith Insurance Education Foundation

6 Where’s My Ice Cream? The Griffith Insurance Education Foundation

7  Insurance payment--$3 The Griffith Insurance Education Foundation

8 Collision and Uninsured Motorist Coverage The Griffith Insurance Education Foundation

9 Plus $3 paid to you by the insurance company.

10 Some Important Purposes of Subrogation  Avoid Double Recovery. The Griffith Insurance Education Foundation

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12 Purposes of Subrogation (cont’d)  Keep Premiums As Low as Possible.  Assure Responsible Parties are Liable The Griffith Insurance Education Foundation

13 SOURCES (OR NOT) OF SUBROGATION RIGHTS  No subrogation—Life insurance  Equitable (“Legal”) Subrogation— Mostly Covered by Contract Today The Griffith Insurance Education Foundation

14  The amounts can be considerable. Homeowner’s insurers were subrogated to their insureds’ rights after an allegedly careless power company sparked a Nevada wildfire that burned down hundreds of homes. The Griffith Insurance Education Foundation

15 Subrogation by Contract  Where permitted, included in most Property and Casualty (e.g., Homeowners) policies.  Also in Health Policies because Courts did not recognize Equitable Subrogation for Health Insurance.  Example: Shumpert v. Time Insurance Co., 329 S.C. 605, 496 S.E.2d 653 (1998) The Griffith Insurance Education Foundation

16 Subrogation by Statute: Some examples  Uninsured Motorist/Underinsured Motorist Coverage  Example: Uninsured Motorist--Cal. Ins. Code sec (g) (Insurer is “subrogated to the rights of the insured...to the extent that payment was made.”). Underinsured Motorist— Cal. Ins. Code sec (p)(5)(UIM insurer entitled to “reimbursement or credit in the amount received’ from the underinsured motor vehicle’s driver or insurer.).  Workers Compensation, Medicare  Worker’s Compensation: See, e.g., Calif. Labor Code sec , Shultz v. Gotlund, 138 Ill.2d 171, 175, 561 N.E.2d 652, 654 (1990).  Medicare: 42 U.S.C. sec. 1395y(b)(2)(B)(iii)(Medicare subrogated to any judgments or settlements that “relate to” injuries, but reduced by pro-rata share of “procurement costs” –i.e., attorney’s fees and other costs. 42 C.F.R. sec (c)(2002)) The Griffith Insurance Education Foundation

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18 Plus $3 paid to you by the insurance company.

19 The Collateral Source Rule  The responsible party must pay for damages (e.g., property damage or medical bills) even though they are covered by the injured party’s insurance. The Griffith Insurance Education Foundation

20 Plus $3 paid to you by the insurance company.

21 AFTER ATTORNEY’S FEES The Griffith Insurance Education Foundation Plus $3 paid to you by the insurance company.

22 WHAT IF THE CUBBARD IS BARE (NEARLY)? The Griffith Insurance Education Foundation Plus $3 paid to you by the insurance company. Who has priority when there are insufficient funds? Courts, legislatures and policy drafters use different approaches, E.g., “Common Fund” (share the production costs), “Pro-Rata” (share the imposed discount), or “First Dollar” preference for one party as against other claimants. See Bibliography on next to last slide

23 What Role Can State Legislators Play in Balancing These Claims to a Limited Pie?—Herein of “The Creeping Federal Octopus” The Griffith Insurance Education Foundation

24 For Most Property and Casualty— The Ball is in Your Court, but....  Medicare?—No role to play since payments come from federal government  Employers’ Medical Plans? May state legislators adopt a “Make Whole” rule or a “Pro-Rata” Rule to override the subrogation provisions in the plan? The Employee Retirement Income Security Act of 1974, 29 U.S.C.S. sec et seq. (ERISA)preempts state law and directs enforcement of “the terms of the plan.” Sec. 1132(a)(3). “[I]f the agreement governs, the agreement governs,” to quote Justice Kagan in US Airways v. McCutchen, 133 S. Ct (2013 The Griffith Insurance Education Foundation

25 But When Does ERISA Preempt? 29 U.S.C.S. sec. 1144(b)(2)(A) preserves from ERISA preemption “any law of any State which regulates insurance, banking, or securities.” This saving clause has been interpreted to permit state regulation of workplace health plans that are “insurance.” State laws, however, are preempted with respect to plans that are self-funded by the employer but (usually) administered by an insurance company. These, in the Court’s view, are not “insurance.” Thus, in Fmc Corp v. Holliday, 498 U.S. 52 (1990) the Court would Pennsylvania’s motor vehicle antisubrogation law for an “insurance” plan. In U.S. Airways v. McCutchen, a self- funded plan, state law played no role. The Griffith Insurance Education Foundation

26 THE AFFORDABLE CARE ACT  At present approximately 60% or ERISA plans are self- funded, so state law has no role to play. Some large employers are dropping their health benefit plans and sending employees to the exchanges.  More choices  Less expensive?  Governed by ERISA or state subrogation rules? The Griffith Insurance Education Foundation

27 STAKEHOLDERS  Health insurers and their policy holders  UM/UIM  Victim  Auto Liability insurers and their policy holders The Griffith Insurance Education Foundation

28 Brief Bibliography on Subrogation  https://docs.google.com/document/d/1 o3_mZdNRgLh33j8hCzqDv6eFe0YuD ZiiGfKDb0ArtLM/edit?usp=sharing https://docs.google.com/document/d/1 o3_mZdNRgLh33j8hCzqDv6eFe0YuD ZiiGfKDb0ArtLM/edit?usp=sharing or  The Griffith Insurance Education Foundation

29 Bon Appétit The Griffith Insurance Education Foundation

30 Robert W. Peterson Professor of Law Director, Center for Insurance Law and Regulation School of Law Santa Clara University Santa Clara, CA Tel: (408) INFORM+INSPIRE The Griffith Insurance Education Foundation Questions?


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