Multiple states have proposed or passed laws that threaten carriers' abilities to subrogate, and the trend is expected to continue.
Subrogation has been around for nearly 2,000 years as a legal doctrine, with roots that trace back to Roman law under the reign of Emperor Hadrian. Subrogation as an "equitable" remedy traces its origins to maritime insurance decisions by equity courts of England. Lord Chancellor characterized this relief as "the plainest equity that could be." It has been a legal right for insurers for hundreds of years in U.S. jurisprudence.
Despite its longstanding tradition, subrogation as a legal concept in American jurisprudence has been under increasing attack since 2000. The National Association of Subrogation Professionals (NASP) has seen a recent flurry of legislative proposals affecting subrogation, most notably direct anti-subrogation bills. Two thousand nine was a banner year for industry opponents that seek to reduce, restrict or eliminate subrogation recoveries across all lines of business. This year could hold even more activity as those forces push for its elimination in more states and on the federal level.
2009 Legislative Efforts
In preparing for upcoming legislative activity regarding subrogation rights, it is beneficial to understand the types of strategies used by opponents of subrogation and what bills were proposed during 2009. All of these bills share a common trend pitting subrogating carriers against injured victims without concern for the greater good subrogation provides to the insurance-buying public.
A review of some of the 2009 bills indicates several trends in anti-subrogation activity. First, most of the bills seek to impose on subrogation rights the concept of the injured party being "made whole" ahead of the subrogating carrier. As with any bill, the devil is in the details here as to what makes a party "whole" and what the ability of insurers to contract it away would be. Second, there has been a push to reduce subrogation rights by a pro rata share of attorney fees. This concept of "common fund" reimbursement forces subrogated carriers to pay an injured party's attorney fees without attorneys actually having represented the subrogation claim. Third, there is a push to simply eliminate subrogation entirely, allegedly to encourage more settlement of cases.
Connecticut introduced a bill that would have required workers' compensation carriers making subrogation recoveries to repay an injured worker's attorney fees before any right of subrogation or reimbursement could be enforced. The bill would have provided the workers' compensation carrier with first dollar recovery rights only after the worker's attorney was paid. This bill failed as the legislative session ended before it could be passed.
Hawaii introduced several medical malpractice tort reform bills that sought to eliminate subrogation rights for workers' compensation, health and disability claims. The most stringently worded bill was House Bill 804, which would have allowed the introduction of collateral source benefits into evidence. If a party were to choose to introduce collateral source benefits, the opposing party would be given the opportunity to introduce evidence of premium payments. The bill also would have disallowed a lien or credit against any recovery a plaintiff secured and barred equitable or legal subrogation rights. The bill applied not only to any case that was tried, but also to any medical malpractice case that was to settle. HB 804 did not pass, and neither did any of the Hawaii medical malpractice tort reform bills. Nonetheless, the push to eliminate subrogation rights in the state is expected to continue in 2010.
Kentucky House Bill 167, with provisions affecting workers' compensation subrogation, did not pass.
The governor of Maine signed into law an anti-subrogation bill pertaining to medical payments coverage in a casualty policy. The law states that an insurance policy may not provide for subrogation or give priority to an insurer for payments made "for any hospital, nursing, medical or surgical services" or for any payments made under medical payments when an insured is entitled to reimbursement from a third party. The law carves out an exception by allowing for subrogation in cases where the injured party recovers over $20,000 and the insured gives written approval for such rights.
Nevada also presented a bill seeking to prohibit subrogation rights for health plans until the injured party is fully compensated. Nevada's bill did not make it out of committee.
New York has been toying with anti-subrogation for nearly five years. Finally, in 2009, the Empire State got enough votes in the state Senate to pass an anti-subrogation bill, and Gov. Paterson signed the bill into law in November. This law eliminates subrogation claims in personal injury and wrongful death actions when the injured party settles with the responsible party. Its language is less than precise and lacks clarity for how it will apply. The legislation specifically preserved reimbursement rights only when there is a statutory right to them.
If a carrier is pursuing a subrogation or a non-statutory right of reimbursement claim and a plaintiff settles a personal injury or wrongful death claim, the statute may completely bar the insurer's claim. There is uncertainty about the law when a party seeks recovery and a judgment has been rendered before the settlement. The statute could be employed by uninsured New Yorkers to avoid liability for damages they caused by simply settling with the insurer's policyholder, even post-judgment.
In 2009, for the first time ever, we watched a state Bar take up the charge to eliminate subrogation from its legal system. The Ohio State Bar Association (OSBA) researched the issue of subrogation in connection with personal injury and wrongful death claims. A special select committee created by the OSBA president met and proposed to the OSBA that all subrogation rights be eliminated. The Bar—whose members include Ohio subrogation attorneys—actually proposed elimination of all subrogation rights and, in turn, their own members' practice area.
The OSBA Council of Delegates eventually voted against recommending the bill for presentation to the Ohio Statehouse, but this was not the end of the Bar's efforts to thwart or eliminate subrogation rights. Its board of governors created a special committee to further study and review subrogation law. It will report back to the Council of Delegates this month.
Oregon considered a bill that would have reduced personal injury protection (PIP) subrogation recoveries. The bill would have allowed an insurer to recover on a PIP subrogation claim only when the injured party's settlement or verdict exceeded his or her "damages"—as opposed to "economic damages." This would have allowed the injured party to claim he or she must be made whole for all damages, including pain and suffering, before an insurer is entitled to recover any PIP subrogation dollars. This bill is expected to be considered again in 2011 when the legislature reconvenes.
The Lone Star State made its first attempt at made-whole legislation in response to a court ruling by the Texas Supreme Court. Texas House Bill 4095 sought to limit group health and accident plan subrogation rights. Specifically, the bill would:
- Subordinate an insurer's subrogation rights to its insured's right to be "fully compensated"
- Mandate an insurer share in the legal expenses to the same extent the insurer shared in the insured's recovery
- Deny an insurer's right to recover against its insured's first party recovery.
The Texas bill did not pass. It is anticipated that the bill will be brought up again when the Texas legislature reconvenes.
House Bill 54 was signed into law amending workers' compensation law to reduce subrogation recovery fees and costs. It contains other provisions specifically related to workers' comp cost of living adjustments, coverage for non-standard executives, the duration of disability benefits, employer premium credits and other workers' comp coverage issues.
The U.S. Congress also jumped on the anti-subrogation bandwagon in 2009 in the context of healthcare reform. An amendment to the healthcare reform bill would have applied limited ERISA (Employee Retirement Income Security Act) health plan subrogation rights to only the portion of the recovery that was specifically allocated to medical bills. It would have also limited recoveries for all ERISA plans by forcing reductions for plaintiffs' attorney fees. This amendment did not make it out of the House committee and wasn't part of the final healthcare bill, but it does show there's interest in limiting subrogation at the federal level.
Early 2010 Legislative Efforts
As expected, 2010 has already seen a strong push to restrict subrogation rights and, ultimately, reduce subrogation claims.
The original version of Colorado House Bill 10-1168 sought to codify the made-whole and common-fund doctrines and would have affected healthcare, workers' compensation, auto and property insurance subrogation. As presented, the bill proposed to limit all subrogation rights whenever there was a personal injury suffered in the same loss or occurrence. One of the most troubling provisions of the proposed bill would have been the elimination of the subrogated insurer's right to directly pursue a third party who caused the loss—even if the injured party were to fail to do so. Such a prohibition would have favored only responsible parties.
The industry lobbied hard against this bill, with property and casualty insurers, workers' compensation carriers and health insurers joining together in opposition. During the committee process and hearing, the personal injury plaintiff's bar, which was pushing to restrict or eliminate subrogation, agreed to exclude workers' compensation, auto and property insurance subrogation from the reach of the statute. The focus of the personal injury attorneys was clearly to eliminate subrogation for health insurers and plans.
Amendments were added to the bill allowing carriers to file direct actions 60 days prior to the applicable statute of limitations. Health insurance subrogation is still faced with the made-whole doctrine and common-fund reductions, but the amendments somewhat clarify when a party is made whole. This bill is in the state Senate as of this writing and has not been voted upon, but it is expected to pass and become law sometime in 2010.
South Dakota followed Colorado in early 2010 by introducing a codification of the made-whole doctrine. In February, South Dakota introduced Senate Bill 169, which simply stated:
No insurer under this chapter is entitled to participate in any recovery from any tortfeasor on account of bodily injury or death or damage to property unless and until its insured has first been made whole. The provisions of this Act do not apply to any workers' compensation recovery.
The South Dakota legislature is known for working fast, and by March the bill had already passed in both the House and the Senate and was on its way to Gov. Michael Rounds' desk for signature into law.
Rounds vetoed the bill. In doing so, he suggested that a change to subrogation rights did need to be made, but he felt that the proposed Senate bill went too far in favor of the injured. A special legislative session was then conducted, but the legislature did not gather the necessary votes to override the veto.
Future Anti-Subrogation Legislative Efforts
Judging by activity so far this year, anti-subrogation legislation activity will be high in 2010. Subrogation rights are threatened anytime they are perceived as competing with the right of an injured party to be compensated. The personal injury attorneys' Bar will likely push harder in more states to eliminate subrogation rights—especially in the health, auto medical payments and PIP benefits arenas. Arguments will present injured victims as the ones who suffer when subrogation rights are enforced, taking the focus away from the responsible party who caused the loss.
Insurance companies and industry professionals can help defend subrogation by focusing the argument on the good served through subrogation. Subrogation makes at-fault product manufacturers or negligent individuals pay for all the damages they cause, and—when handled equitably—supports good underwriting and fair premiums.
There are legislative fact sheets available on the NASP's Web site to assist the industry in educating the public and combating detrimental laws. Let's continue our efforts to create a more favorable legislative environment for the subrogation industry.
Daran Kiefer is an attorney with Kreiner & Peters Co. and serves as the National Association of Subrogation Professional's Amicus Chair. Kammy Poff is with Allstate Insurance and serves as the NASP StateNet Chair. www.subrogation.org