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Tilting at Windmills

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January 12, 2006
By: Kevin Drum

SPECIAL INTEREST CONSERVATISM....Today's lecture on Republican pandering to special business interests concerns the soon-to-be-extinct legal doctrine known as "equitable subrogation." You're excited already, aren't you?

Here's the nickel explanation. Suppose you're in a car accident and you suffer a bunch of damages: medical bills, lost wages, lawyers' fees, and so forth. Your insurance company pays your medical bills, and then you sue the other guy and recover damages. What happens to the money you recover?

Your insurance company naturally thinks the first priority should be to repay them for the medical bills they covered. However, anyone who's not a paid spokesman for the insurance industry probably disagrees. After all, the insurance company has been collecting premiums for years and has enormous financial resources, while the victim is the one who's actually suffering from both physical injury and financial distress. Common sense suggests that the injured party should get first crack at the dough, and only after he's "made whole" should the insurance company get repaid. This is the doctrine of equitable subrogation.

That's fair, and it's also the law in most states. But of course, insurance companies hate it, and we all know that the insurance industry's best friend is the Republican Party. Isn't it about time for all those campaign contributions to start paying off?

You betcha! And the magic answer to the insurance industry's woes is "ERISA," a federal law that has grown since 1974 to oversee 130 million workers covered by employer pension and health plans and oh-by-the-way, a law that sweeps away any pesky state regulation in its path. Wouldn't it be nice if ERISA were amended to get rid of equitable subrogation and give insurance companies first crack at any money recovered in legal settlements?

You hardly have to ask what happened next, do you? This is from Sue Steinman, policy director of the Association of Trial Lawyers of America:

Heres what happened on the Hill. The House bill [on pension reform], as originally introduced, did not contain the subrogation language nor did the bill reported out of committee contain the subrogation language. It was added surreptitiously, just prior to the House floor debate as part of a Managers Amendment. The House Rules allow this, if a Managers Amendment is blessed by the Rules Committee, which is controlled by the Majority. Thats what happened in this case.

Yes, that's surreptitiously, the Republican majority's favorite way of screwing their own constituents. From here the bill will go to a conference committee, where the subrogation language will either live or die. If you think this sucks, call your congressman and complain.

NOTE: This issue was brought to my attention by Brian King, a Utah lawyer who specializes in ERISA cases. You can find a more detailed explanation of this issue on his blog.

Kevin Drum 2:26 PM Permalink | Trackbacks | Comments (88)

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Comments

Can I just hit my head with a hammer instead?

Posted by: Ace Franze on January 12, 2006 at 2:33 PM | PERMALINK

more of that amazingly-popular Republican agenda...

it's so popular they can't debate it out in the open; if they did, people would accuse them of wasting time even talking about it when they should be implementing it straightaway!

Posted by: cleek on January 12, 2006 at 2:33 PM | PERMALINK

Man, this racket is easy money. How can I open-up an insurance company?
Oh wait, those "morals" of mine will probably get in the way. Dang.

Posted by: rusrus on January 12, 2006 at 2:36 PM | PERMALINK

This is from Sue Steinman, policy director of the Association of Trial Lawyers of America:

But, Kevin, Americans hate trial lawyers!!! No wonder you moonbats can't win elections, with people like this on your side!

And is Steinman a Jewish name? Ha! Good luck with this one, loony lefties!!!!1!!

Posted by: Alek Hidell on January 12, 2006 at 2:37 PM | PERMALINK

It's ok, this doesn't affect anyone that tbrosz knows personally, so no big deal.

Posted by: craigie on January 12, 2006 at 2:37 PM | PERMALINK

I remember being naively shocked in the early '70s during the big rise in insurance rates, when my former brother-in-law told me that the reason had nothing to do with losses, rising accident rates or any other expense.

Instead, he explained he had learned at law school that the rate increases were exclusively due to stock and financial market fluctuations that impacted the insurance companies investments, and they were passing the losses onto us.

In no other business would that be allowed, And while I'm not a committed socialist, if auto insurance is madated, it should become a public utility, with no profit making ability unless severly regulated.

Bastards.

Posted by: SteveAudio on January 12, 2006 at 2:37 PM | PERMALINK

Republican lawmakers should be forced to read these bills aloud in a working-class bar just outside Pittsburg. If they make it out alive, then it can go to the floor for a vote.

Posted by: rusrus on January 12, 2006 at 2:38 PM | PERMALINK

Well, this is good and great in most cases--but let's not forget that many people have health insurance provided not through big insurance companies but through union or other group sponsored health plans that are "self funded" through employer contributions. These are not big profit motivated plans, and subrogation is a necessary part of their maintaing financial viability to ensure future coverage of all participants. With that exception, nice post.

Posted by: bubba on January 12, 2006 at 2:38 PM | PERMALINK

Steve -

I, also, am no socialist, but if ever there was an industry which the government should take over, it's insurance. The whole premise of insurance is that everyone loses a little so that nobody loses a lot. When you add the profit motive, though, the premise changes to "everyone write me a check, and, er, that's it"

Posted by: craigie on January 12, 2006 at 2:39 PM | PERMALINK

Jesus Christ, how fucking depressing.

Can't they just screw us in ways we might know about?

I feel like the American public is constantly waking up in strange bed, sore in unmentionable places and with a 5 dollar bill on the night table. And the last thing they remember is taking a drink from some smarmy guy they met in the bar.

Posted by: frankly0 on January 12, 2006 at 2:39 PM | PERMALINK

Bubba: There's nothing wrong with subrogation per se. It's a normal part of the insurance biz. However, giving the insurance company first crack at settlement money even before the victim has been compensated for his injuries is a travesty. It sure as hell shouldn't be federal law, and it sure as hell shouldn't be tucked away at the last minute in a massive pension reform bill in the hope that no one will notice.

But it sounds like we agree about all that anyway.

Posted by: Kevin Drum on January 12, 2006 at 2:42 PM | PERMALINK

I'll just say one thing. Steve is 100% right on that.

The problem with insurance is a lack of investment returns. And auto insurance in particular, seeing that it's government mandated (realistically), it should be government run as a non-profit.

Posted by: Karmakin on January 12, 2006 at 2:43 PM | PERMALINK

Stay bent over. It's a lot easier on your back than bobbing up and down all the time.

Posted by: alex on January 12, 2006 at 2:44 PM | PERMALINK

Even though I read the link, I think King may have missed a point, which, unlike the point argued, goes to a basic sticking point between Dems and R's -- DO WE HAVE A FAULT SYSTEM OR A NO-FAULT SYSTEM?

In a "fault" system, one of the benefits to not causing an accident is, presumably, lower insurance costs to you. It thus matters "who pays" its not just a question of whether you have paid premiums, the question is that the rates of those premiums was based, in part, on your own personal carelessness or recklessness.

Thus, it is logically consistant in a "fault" system for the insurance company to be reimbursed. The reason is that you are mostly insuring against your own negligence. Somone else, or thier insurance company, should pay for their negligence. Obviously, in some cases if your insurance company is reimbursed it means that you recover less. But that's not tecnhically the point, the point is, what type of system is in place? Should "your" insurance company pay for someone else's negligence, or should the other person "pay" if they can?

In a "no-fault" system, not only would you not re-imburse your insurance company, you would not even sue the other party, in theory you would be covered by the insurance you paid for.

This is the debate that takes place here daily, even though evidence abounds that the world is a random, dangerous place, so-called conservatives always argue for a "fault" system, no matter the topic.

Posted by: hank on January 12, 2006 at 2:46 PM | PERMALINK

I feel like the American public is constantly waking up in strange bed, sore in unmentionable places and with a 5 dollar bill on the night table. And the last thing they remember is taking a drink from some smarmy guy they met in the bar.

One of your finer posts Mr.O. If only it was a joke...

Posted by: LW Phil on January 12, 2006 at 2:46 PM | PERMALINK


Note that Brian King says that if this amendment makes it into law, "the law of equitable subrogation will likely go by the boards, at least for ERISA plans. I initially read Kevin's post to suggest that the GOP was amending ERISA to pre-empt state insurance law across the board.

Which is not to defend what they're doing, only to be precise about the scope.

Posted by: Tyrone Slothrop on January 12, 2006 at 2:48 PM | PERMALINK

whatever happened to tbrosz anyway? no one to kick around here.

Posted by: nut on January 12, 2006 at 2:53 PM | PERMALINK

This is the debate that takes place here daily, even though evidence abounds that the world is a random, dangerous place, so-called conservatives always argue for a "fault" system, no matter the topic.

There is nothing a conservative fears so much as moral hazard. They all believe that no-fault insurance, by making it irrelevant to whether or not you caused the accident you were in, removes the disincentive to cause accidents.

Since of course we're all just dying to slam our cars into other people's cars - it's so much fun to risk injury or death, smash up our prized possessions, stand around for an hour or so while the police do the accident report and get acquainted with the driver of the other car who now hates our guts, deprive ourselves of our own means of transport for several days, and get into the really rewarding, interesting, and convenient process of trying to recover money from our insurance companies.

Posted by: brooksfoe on January 12, 2006 at 2:57 PM | PERMALINK

No one has mentioned that this is yet another situation where Republicans are pissing on "states' rights".

States' rights to discriminate against black people: important to protect!

States' rights to issue laws covering health care and tort claims that are reasonably protective of the little guy: important to destroy!

Somebody should count the different situations where the Federal government in recent years has trampled on the rights of blue states, just to permanently destroy the idea that Republicans in Congress have any sort of general commitment to delegating governance to the 50 states.

There are dozens of situations where the Federal government has issued laws which explicitly override any state legislation which is better for the individual. This is the main role of the Federal government today: setting *maximum standards* that the states cannot surpass. I'm surprised the U.S. doesn't yet have a maximum wage.

Posted by: Anon on January 12, 2006 at 3:00 PM | PERMALINK

Republican lawmakers should be forced to read these bills aloud in a working-class bar just outside Pittsburg. If they make it out alive, then it can go to the floor for a vote.

Bloody fantastic suggestion! I suggest a constitutional amendment to add it to our system of checks and balances.

Posted by: trex on January 12, 2006 at 3:06 PM | PERMALINK

And by the way, I'm not a shill for the insurance industry. This type of hammer-head inducing debate is inevitable when you have fault and no-fault concepts attempting to co-exist in the same system

Posted by: hank on January 12, 2006 at 3:07 PM | PERMALINK

kevin, as for regular insurance, I agree. And on the whole "federal law" and "tucking away" issues, I also agree. But with the normal type of union plans I work with, usually operating on slim "margins", not being worried about profits or return to investors, and actually having as their priority the long term health of the plan in order to continue to provide health benefits to all participants of the plan, subrogation is necessary even before the victim has been compensated for his or her full damages. The plans could basically say "well, as a third party has caused your damage, you can get your medical bills paid by that third party as that third party is responsible for these expenses." This, obviously would not be a good thing for the participant. He or she has a serious medical problem, likely does not have the means to fork out the likely huge cost of medical treatment, and then on top of that have the ability to wait for a judgment or settlement of a case to obtain reimbursement from the party at fault. These plans are basically providing to the participant an advance to allow the participant to obtain immediate medical assistance, with no worries, and not having to pay this advance back until there is a settlement or judgment. Why shouldn't these plans then be entitled to getting their money back first? To say that they should not be entitled to subrogation first will basically have a chilling effect on such plans, who will then basically refuse to cover such expenses, if a third party caused them. The participants end up on the short end of that stick.

Posted by: bubba on January 12, 2006 at 3:08 PM | PERMALINK

Don't we pay over 400 public officials to deliberate problems and come up with consensual solutions, in order to ensure that no one has surreptitious power? Isn't transparency and public accountability the backbone of Democracy?

For all this talk about exporting Democracy to other parts of the world, we're doing a pretty s***ty job of preserving it at home.

Posted by: Jon Karak on January 12, 2006 at 3:09 PM | PERMALINK

slightly off-topic:

begin quote

German medical and biopharmaceutical firms are now lagging far behind their younger cousins in the U.S. when it comes to developing the new wonder drugs that are shaping the 21st century: By some estimates, U.S. labs are churning out 70 percent of all new drugs.

A range of shortsighted government policies did much of the damage: Reference-pricing policies, in which the government will pay only for a certain amount of low-cost medicines in a class of drugs, have become one more disincentive to develop improvements in any category of drugs. Price and access controls make private R&D too expensive, even forcing some labs to shut down. And by steadily scaling back the government resources available to support research, Germany has put its drug-makers at a severe disadvantage.


In fact, early drafts of a forthcoming study indicate that Germanys share of global pharmaceutical R&D spending fell from 13 percent in 1973 to a mere 7 percent in 2000. Looked at another way, if Germany simply invested the same share of global R&D resources in bio-pharmaceuticals it invested in 1973, it could create 35,000 more jobs in the field.

Unfortunately for Europe, Germanys decline is just part of a Europe-wide problem. Media on both sides of the Atlantic have reported the piecemeal relocation of Europes biopharmaceutical industry to America. Upon moving its global research headquarters to the U.S., Switzerlands Novartis created a cutting-edge biomedical research campus in Cambridge, Massachusetts, in 2002. Likewise, after transplanting its international headquarters to New Jersey in 2002, Dutch drug giant Organon launched a new biotechnology research facility in Cambridge in mid-2005. Organon officials call the region the perfect breeding ground for medical biotechnology. The Anglo-Swedish AstraZeneca is investing hundreds of millions of dollars in new labs in the U.S., and almost 30 per cent of its employees are now based in the Americas. The UKs GlaxoSmithKline has manufacturing and research facilities across the U.S., and almost one-quarter of its workforce is now based here.

end quote

This is a good item to recall next time we discuss national health care. The US makes about 20% of the world's total material wealth, but 70% of new drugs.

Posted by: contentious on January 12, 2006 at 3:17 PM | PERMALINK

Today, here at Southebys DC, gentlemen, what are your bids for:

Pain and Suffering Removal

Joint and Several Liability Reform

All product liability cases moved to federal court.

Mandatory arbitration with "Independent" Examiners.

Losing plaintiffs must pay all fees of the defendant.

Gentlemen and Ladies, the bidding begins at $10,000,000. Our children have needs, too.

Posted by: Repug Congressman on January 12, 2006 at 3:21 PM | PERMALINK

Your insurance company naturally thinks the first priority should be to repay them for the medical bills they covered. However, anyone who's not a paid spokesman for the insurance industry probably disagrees. After all, the insurance company has been collecting premiums for years and has enormous financial resources, while the victim is the one who's actually suffering from both physical injury and financial distress. Common sense suggests that the injured party should get first crack at the dough, and only after he's "made whole" should the insurance company get repaid. This is the doctrine of equitable subrogation.

Good grief! don't stop the analysis with "common sense", do some math. If the insurance company does not get repaid (recall, this happens millions of times per year in the aggregate) then it has to raise its premiums in order to maintain its fiducial reliability. There is no reason that the insured should receive back more in total than he or she contracted for and paid premiums for.

Remember, Intelligent Design is the "common sense" alternative to evolution by random variation and natural selection. "Common sense" is the theory that the sun "rises" in the east and "sets" in the west -- genius was required to ascertain that the earth is spinning. No actual problem has ever been solved by "common sense".

Posted by: contentious on January 12, 2006 at 3:25 PM | PERMALINK

This is from Sue Steinman, policy director of the Association of Trial Lawyers of America:

Good grief! at least a little scepticism, since the source is obviously not unbiased.

Posted by: contentious on January 12, 2006 at 3:28 PM | PERMALINK

There is no reason that the insured should receive back more in total than he or she contracted for and paid premiums for.

of course there is: the contracts people sign with insurance companies have no such limitations.

Posted by: cleek on January 12, 2006 at 3:33 PM | PERMALINK

(i was assuming your focus was on the "paid premiums for" part, of course)

Posted by: cleek on January 12, 2006 at 3:34 PM | PERMALINK

contentious: The US makes about 20% of the world's total material wealth, but 70% of new drugs.

And yet we still run a $15B/yr trade deficit in pharmaceuticals. Go figure.

BTW, the next time you provide a long OT quote, you might want to include something called a "source". Are is that a violation of the Talking Points Style Guide?

Posted by: alex on January 12, 2006 at 3:35 PM | PERMALINK

I hate them SOOOOO much.

I hate them SOOOOO much.

I hate them SOOOOO much.

Posted by: Mitch on January 12, 2006 at 3:39 PM | PERMALINK

Good grief! don't stop the analysis with "common sense", do some math. If the insurance company does not get repaid (recall, this happens millions of times per year in the aggregate) then it has to raise its premiums in order to maintain its fiducial reliability.

No one, including me, suggested that insurance companies, either private or public or gov't run, should go broke. Clearly they need to maintain viability.

But you inadvertently said it yourself:

There is no reason that the insured should receive back more in total than he or she contracted for and paid premiums for.

When I had a car stolen in '91, the amount State Farm paid was considerably more than I had paid into them, but it was exactly what they had contracted with me to do: cover my losses. If you were saying that they sould only have repaid my premiums, that is simply foolish.

Posted by: SteveAudio on January 12, 2006 at 3:41 PM | PERMALINK

Contentious, you need to scroll back up. Premiums have nothing to do with losses. Premiums are determined by how the insurance company's investments are doing. But thanks for playing.

Posted by: Jose Padilla on January 12, 2006 at 3:44 PM | PERMALINK

This is a good item to recall next time we discuss national health care. The US makes about 20% of the world's total material wealth, but 70% of new drugs.
Posted by: contentious

easy to do when a substantial bulk of the research is supported by taxpayer funds.

Posted by: Nads on January 12, 2006 at 3:46 PM | PERMALINK

We are going to have to dig deep and donate big
to find any fair treatment anywhere.
But face it there is no way to fight that kind of
big money. Due to the fact that we all are
required buy law to pay our dues to the very
same people who fund the corrupt goverment
to steal from us.

does commen sence exist anymore if all we
are capable of is oxymorons.
WE PAY TO GET RIPPED OFF.

Posted by: Honey P on January 12, 2006 at 4:12 PM | PERMALINK

Back at Southeby's DC, Joe Repug Congressman yells, "OK, how much am I bid for my dignity and honor?" - KaChing, KaChing, KaChing.

Posted by: Repug Congressman on January 12, 2006 at 4:14 PM | PERMALINK

Tyrone, the problem is that, as Kevin said, ERISA governs the rights of over 130 million Americans. If this amendment passes, ERISA's preemption clause makes it likely no state insurance laws which preserve equitable subrogation will be left standing.

Which brings us back to Anon's point about states rights. As said in that comment, Republicans are all for federal legislation that limits consumers rights but heaven forbid we have federal legislation that restricts the rights of business, the wealthy, conservatives or Republicans.

Posted by: Brian King on January 12, 2006 at 4:28 PM | PERMALINK

Don't you know what Erisa stands for? Every rotten insurance scam available.

Posted by: ExBrit on January 12, 2006 at 4:31 PM | PERMALINK

Wow, this "contentious" bloke is really getting up my nose. First an utterly OT, sourceless post which in any case is wholly misleading, and then this:

"There is no reason that the insured should receive back more in total than he or she contracted for and paid premiums for."

Do you even understand how insurance works? The consumer is paying premiums to offset risk. If the negative outcome happens, they insurance company has to pay the consumer what they owe. And get this - the insurance company is designed for this. They have enough premium holders and other sources of income that they can pay out in the negative outcomes and still earn profits! Wow! Gosh! Who would have thought that an insurance company could calculate its expenditure on risk?

A lawsuit against the person who committed the accident is external to the insurance payment. In the case of a settlement, the consumer is not receiving any more money from the insurance company. They're getting it from the person who hurt them.

So what's in question in this article is how a joint settlement should be distributed amongst the plaintiffs, namely the injured and the insurance company. You are stating, essentially, that an injured person should have no right to sue. Insurance companies should have that right, but injured people should not. Because they don't need any money outside of what they got in the completely unrelated insurance settlement.

Which is, of course, stupid.

Why did you come here? Are they paying you?

Posted by: S Ra on January 12, 2006 at 4:41 PM | PERMALINK

"Premiums have nothing to do with losses. Premiums are determined by how the insurance company's investments are doing. But thanks for playing." and "Instead, he explained he had learned at law school that the rate increases were exclusively due to stock and financial market fluctuations that impacted the insurance companies investments, and they were passing the losses onto us."

And they pass the gains on to us too. Insurance rates are fixed by the company to give them so percentage of total return on the money they take in. If a formula it would be (Premiums Paid In) + (Investment of the Premium Money) - (Claims Paid Out) = X. When investments are doing well, competition fends to force the premiums paid in down. When investments aren't doing well premiums paid in have to increase (or claims paid out have to decrease) or the company goes bankrupt. Personally I would rather they increase premiums than be too aggressive in trying to decrease claims paid out. It feels like we are paying for their losses, but except in states where there isn't enough competition among insurers, we also benefited from their good investment years by paying lower premiums.

As for equitable subrogation, I'm torn. Having worked in subrogation as a paralegal in the old days I have to say that I've seen both sides of the equation. There is made whole and "made whole". I've seen insurance companies be too agressive in pursuing marginal settlements and I've seen plaintiffs who were more than adequately compensated who won't pay.

If I were designing a system from scratch I would define "made whole" (for purposes of insurance subrogation ONLY) as some multiple of the total special damages. This would not be total special damages paid, but rather total special damages incurred. It would work like this:

You get in a car accident where a UPS driver hits your car. You total out-of-pocket expenses are $100,000. This includes medical bills, car repairs, lost wages while recovering, a rental car during repairs, etc. For some reason or other perhaps policy limits) your insurance only covers $50,000 of that.

You sue UPS and for some reason they don't settle. You are awarded $500,000 for special damages. $100,000 for special damages (the expenses) and $400,000 for general damages (pain and suffering or perhaps punitive damages because UPS should have know this particular guy was an unsafe driver).

Let's say we set the "made whole" multiple was 3 times special damages. (This could clearly be some other number but I think 3 is probably pretty fair.) So everything until 3 times the special damages amount is not subject to subrogation. In this case the threshold would be $300,000. Money after that has to be paid back to the insurance company until their payments are fulfilled. That would be the next $50,000 after $300,000. We could also mandate that it be paid on a less than dollar for dollar basis. Perhaps the insurance company would be paid on a 50 cents per dollar over $300,000 basis until it was fully repaid.

In any case, if I were designing a system it would probably work like that--it acknowledges the reality of general damages, while not letting plaintiffs generally off the hook if they get fairly large payouts.

Posted by: Sebastian Holsclaw on January 12, 2006 at 4:53 PM | PERMALINK

There is no reason that the insured should receive back more in total than he or she contracted for and paid premiums for.

How much do you pay for your home owner's insurance ? How much is your home worth ?

Posted by: Stephen on January 12, 2006 at 4:54 PM | PERMALINK

If the insurance company does not get repaid (recall, this happens millions of times per year in the aggregate) then it has to raise its premiums in order to maintain its fiducial reliability.

Insurance companies seem to be doing OK now.

Why do we need the current law changed ?

Posted by: Stephen on January 12, 2006 at 5:00 PM | PERMALINK

Okay, Kevin, explain it one more time, because I cannot seem to find out from your explanation what the difference is between "equitable subrogation" and not having "equitable subrogation" to me, the insured? What money do I get or not get if "equitable subrogation" is eliminated?

Posted by: Paige on January 12, 2006 at 5:09 PM | PERMALINK

Why do we need the current law changed ?

Because the Supreme Court has made a God-awful mess of ERISA remedies, leaving substantial doubt as to whether ERISA-covered medical plans can enforce subrogation claims under any circumstances (last I checked; it's been a few months). I haven't read the proposed legislation, and with this Congress I wouldn't be at all surprised if the subrogation language overreached in plans' favor, but there is a real issue that needs a legislative solution.

Posted by: DaveL on January 12, 2006 at 5:17 PM | PERMALINK

Sebastian's comment has the virtue of acknowledging what is self-evident: there are two sides to this issue. To simply obliterate the legitimate interests of the injured person in a "one-size-fits-all" solution that considers only insurer's interests is ridiculous.

Posted by: Brian King on January 12, 2006 at 5:20 PM | PERMALINK

Note what is probably the point of such diabolical legislating: for the republican silent assassins to enact tort reform under the radar.

The predictable consequence of erasing equitable subrogation is that joe-schmoe plaintiffs stand to receive little-to-no money from lawsuits. Thus there is little *incentive* for joe-schmoe to sue.

There's a bunch of little ways republicans are trying to get tort reform (ie no more suing big companies for damages) into law. They fail trying to get it above-board, so this and other little ways are what they do.

Posted by: cdj on January 12, 2006 at 5:24 PM | PERMALINK

Paige,

I'll give you a simple example. I'm a plaintiff's attorney. A few years ago I had a client who had a broken hip. After two surgeries and a partial hip replacement he had $72,000 in doctor's bills.

We went to court and got him a $350,000 verdict. There was only $30,000 in insurance. (We currently have a bad faith claim against the at fault driver's insurance company who failed to turn over their $15,000 in insurance money and will try to collect the rest of the verdict against them, but that is a whole new lawsuit against the insurance company).

In equitable distribution, we notify all of the creditors (medical providers and insurance company) and turn the money over to the Court for a determination of how it should be divided. A typical division would be $10,000 (1/3) for the doctor's and health insurance; $10,000 (1/3) for the lawyer for collecting the money; and $10,000 (1/3) for the client.

My client was a Wal-Mart employee. Wal-Mart is one of 3-4 self funded ERISA companies. That means Wal-Mart gets the entire $30,000. Not one thin dime to the person who got hurt. Not one plug nickel to the lawyer that collected the money.

My guy got NOTHING from the wreck. I worked the case for a total of five years, put $4,500 of my own money into the case to bring it to trial (depositions, court reporters, medical reports, life care planners, videographers, exhibits...) and got paid nothing.

We were hoping for an equitable distribution and to force the issue at Federal Court, but between when we started and when we ended, there was a case against us.

How could my client get hurt, get a judgment for $350,000 and collect $30,000 in insurance money, but get nothing? It's against state law, but Federal laws pre-empt state laws. You can get something by Congress that you would have to change at 50 different state levels. Money talks.

Posted by: Dave on January 12, 2006 at 5:29 PM | PERMALINK

Paige:

It only comes into play if you sue the party who injured you and get a settlement.

Subrogation is how much of that money goes into the insurer's pocket (who paid up front for your injuries) vs how much goes into your pocket, as the damaged person, to "make you whole."

Equitable subrogation is the concept that it should go to you, the damaged party, before it goes to the insurer.

And I know nothing about the insurance industry -- just got that from reading Kevin's post.

Bob

Posted by: rmck1 on January 12, 2006 at 5:31 PM | PERMALINK

I just sent an e-mail to my Repub Louisiana congressman complaining about this. I included the following:

"After all the controversy about how insurance companies are refusing to pay for damages from Katrina, I do not understand how Congress can pass a bill like this where only the insurance companies benefit."

Posted by: Red Stick on January 12, 2006 at 5:34 PM | PERMALINK

Dave:

Jesus H. Christ, you bloodsucking tassled-loafered *leech*, you ...

Siiiiigghhh ....

And no doubt the K-Street Project is making this major focus in one way or another.

Call it target-appropriate federalism.

Bob

Posted by: rmck1 on January 12, 2006 at 5:37 PM | PERMALINK
SPECIAL INTEREST CONSERVATISM

Most. Redundant. Title. EVAR.

Posted by: cmdicely on January 12, 2006 at 5:41 PM | PERMALINK

rmck1,

I know. I collected the money for the insurance company for free. I not only unwittingly was working FOR the insurance companies, I did it for free and paid my own money to work for free.

I guess that makes me sort of a stealth Republican.

I could see why the insurance companies and Republicans would be so against us.

Posted by: Dave on January 12, 2006 at 6:04 PM | PERMALINK

Dave:

Did you take the case on contingency?

Bob

Posted by: rmck1 on January 12, 2006 at 6:11 PM | PERMALINK

Dave:

Bending over is one thing.

Meekly handing them the jar of Vaseline from behind quite another ...

Jesus, what a racket they run.

Bob

Posted by: rmck1 on January 12, 2006 at 6:13 PM | PERMALINK

Dave, if you're not already familiar with it, have a look at Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, where Brother Scalia took another ride on his "equitable remedies" hobbyhorse and held that ERISA-covered medical plans don't have an ERISA cause of action to enforce their subrogation/reimbursement provisions. Last time I checked, plans and lower courts were struggling to figure out whether that left plans with any way of getting repaid at all, but despite some impressive efforts to figure out a state-law cause of action that isn't preempted, it didn't look good. I've now looked at the language in the pending legislation, and all it does is legislatively overrule Great-West. You're right that that probably means subrogation provisions will be fully enforceable in accordance with their terms, which is unfair in cases like yours, but OTOH it's also unfair to hold that subrogation provisions are never enforceable no matter how badly the plan is squeezed and how well the claimant has been compensated by the tortfeasor. It's a mess, but I think more a product of the Supremes' (particularly Scalia's) rigidity with ERISA remedies than special-interest shenanigans in Congress.

Posted by: DaveL on January 12, 2006 at 6:23 PM | PERMALINK
Common sense suggests that the injured party should get first crack at the dough, and only after he's "made whole" should the insurance company get repaid. This is the doctrine of equitable subrogation.

I don't think "common sense" suggests that at all. First, the insurance company is an injured party (though the injury is purely economic) -- they have experienced an injury as a result of the wrong. Second, if the other injured party is compensated for a loss which the insurance company also compensated that person, well, that is not something for which they had a loss.

But I can't see any rational policy argument that the insurance company should be able to recover anything but a share of the special damages (unless the insurance policy provided some additional compensation for pain and suffering which is, well, uncommon), and, even then, only up to the lesser of the total amount they paid or the total special damage award minus the direct victims previously uncompensated injury.

Ideally, you'd have the jury make detailed allocations of the special damages to specific costs, and the insurance company would only have access to the specific costs it compensated the victim for, and only in proportion to the amount it paid of those costs.

Or, better yet, you'd just reduce the available damage award to the direct victim by any benefits (incl. insurance payments) they received as a result of the wrong, and give the insurance company their own action for their resulting costs against the person who committed the wrong, rather than a claim on the direct victim's damage awards.

Posted by: cmdicely on January 12, 2006 at 6:44 PM | PERMALINK

Steve Audio wrote this: Instead, he explained he had learned at law school that the rate increases were exclusively due to stock and financial market fluctuations that impacted the insurance companies investments, and they were passing the losses onto us.
%%%
In no other business would that be allowed, And while I'm not a committed socialist, if auto insurance is madated, it should become a public utility, with no profit making ability unless severly regulated.

Insurance companies are required to maintain sufficient cash (or easily liquidated) reserves to cover more than their expected claims, to cover the years when claims are considerably above average. When their investments show good returns, they reduce their premiums; when investments show bad returns, they raise their premiums.

Posted by: contentious on January 12, 2006 at 6:54 PM | PERMALINK

Bob,

Yes, I took the case on a contingency basis. But the ERISA plan says that they get every penny or else they don't pay for any of the medical bills. I potentially could have taken my cut, and left the client holding about $73k in doctor's bills. I chose to forgo that and make certain that Wal-Mart covered all of his bills.

(It's possible that they wouldn't have allowed me to take a fee. I'm not really certain, because I was looking out for the client's interests first).

DaveL, I'm familiar with Great West v. Knudson. I had an ERISA expert look over our facts and the case law. No dice. Welcome to the 4th Circuit. (I can't really say that I'm an ERISA expert, but I had it looked over by a number of attorneys that do nothing but ERISA law).

Posted by: Dave on January 12, 2006 at 6:57 PM | PERMALINK

Republican lawmakers should be forced to read these bills aloud in a working-class bar just outside Pittsburg. If they make it out alive, then it can go to the floor for a vote. Posted by: rusrus on January 12, 2006 at 2:38 PM

Best. Idea. Ever.

Posted by: Global Citizen on January 12, 2006 at 7:04 PM | PERMALINK

Welcome to the 4th Circuit.

I'm impressed. Even in the 9th, it usually takes more than a year or two to figure out why a Supreme Court decision that's directly on point doesn't mean what it says.

Posted by: DaveL on January 12, 2006 at 7:04 PM | PERMALINK

Steve Audio: When I had a car stolen in '91, the amount State Farm paid was considerably more than I had paid into them, but it was exactly what they had contracted with me to do: cover my losses. If you were saying that they sould only have repaid my premiums, that is simply foolish.

I wrote "contracted for and paid premiums for"; my meaning would have been better communicated had I written "contracted and paid premiums for". Your contract with the insurance company specifies both the premiums and the coverage.

Posted by: contentious on January 12, 2006 at 7:05 PM | PERMALINK

Jose Padilla wrote this: Premiums have nothing to do with losses. Premiums are determined by how the insurance company's investments are doing.

Sentence 1 is false, and sentence 2 is partially true. Premiums are determined by expected losses, the expected variability in the losses, the coverage that is contracted for (e.g. no, low, or high deductibles), and other expected income.

Posted by: contentious on January 12, 2006 at 7:08 PM | PERMALINK

nads wrote this: easy to do when a substantial bulk of the research is supported by taxpayer funds.

US taxpayer funded reearch results are available to the citizens and pharmaceutical companies of all nations. US pharma companies make the best use of a "common" resource.

Posted by: contentious on January 12, 2006 at 7:12 PM | PERMALINK

S Ra wrote this: Do you even understand how insurance works?

You seem to have misunderstood the conjunction "and" in my sentence. And nobody could get paid to read this shit.

Posted by: contentious on January 12, 2006 at 7:14 PM | PERMALINK

praise where it's due.

Sebastian Holsclaw on January 12, 2006 at 4:53 PM

that's a good post.

BTW, my son got hit by a car and his medical bills were paid by my health insurance. the driver was completely innocent, as agreed by all witnesses. If he had, however, been at fault, it would have been perfectly fair for my medical insurance company to have recovered claim money from his insurance company. there was no way that we would have been deserving of more coverage than we had paid for AND contracted for.

Posted by: contentious on January 12, 2006 at 7:22 PM | PERMALINK

Dave at 5:29: My guy got NOTHING from the wreck.

Didn't your client get his medical bills paid? Wasn't that what the health care insurance was for? Unless you left out some important details, it sounds to me like a fair settlement.

Posted by: contentious on January 12, 2006 at 7:26 PM | PERMALINK

Contentious,
He had health insurance. His health insurance pays when he got hurt.

He was out of work for about 3 months after the first surgery and was out of work about 6 months after the second surgery. He didn't get reimbursed for that.

The future costs of his medical treatment were calculated at about $520k over the span of his lifetime, but the jury disregarded this evidence because he was a Wal-Mart employee and they knew that Wal-Mart has health insurance. Disregarding the fact that he was 34 and the future costs went towards when his hip replacement would break down and have to be replaced when he was 74.

He has not received any money for future medical expenses and has that hanging over his head.

He went through an incredible amount of pain and trauma from this car wreck and got nothing in respect to that. Several members of the jury told me afterwards that the $350k judgment wasn't for insurance, but that was just for our guy.

The jury always talks about insurance in the jury room. We're not allowed to talk about insurance during the trial. In fact, we're sooo not allowed to talk about insurance, we can't even tell them that they're not supposed to consider insurance.

So if someone's gone through all that and his past medical bills are paid, but he's left hanging on his future medical bills, short changed on nine months of lost wages, and absolutely nothing for what he's gone through and you conside that a fair settlement, then I guess you're a heartless bastard. (Sorry for the harsh language, but I don't really know any other way to put it).

Posted by: Dave on January 12, 2006 at 7:55 PM | PERMALINK

Dave:

No, I think you hit the nail on the head.

Bob

Posted by: rmck1 on January 12, 2006 at 8:06 PM | PERMALINK

Dave,

So if someone's gone through all that and his past medical bills are paid, but he's left hanging on his future medical bills, short changed on nine months of lost wages, and absolutely nothing for what he's gone through and you conside that a fair settlement, then I guess you're a heartless bastard.

Actually, when talking about money, insurance, and contracts I am a heartless bastard. Somebody else has to work to earn the money that you want for your client, it isn't just sitting there waiting to be dispersed; and besides that, it may be obligated to someone else later just as deserving, so it can't be spent ad hoc.


He was out of work for about 3 months after the first surgery and was out of work about 6 months after the second surgery. He didn't get reimbursed for that.

Where I work I have distinct payment options for medical costs and for lost income. In both cases, I have choices of how much coverage I want to pay for. For the lost income, for example, if I pay higher premiums I can get 100% salary for quite a long time. I don't have coverage for "pain and suffering"; for that I would have to take somebody to court and prove that they were responsible for causing the pain and suffering. To return to the case of my son, he had internal bruising, concussion with loss of consciousness, broken tibia and fibia; his pain and suffering were palpable, and he received no payment for it. Furthermore, the concussion with loss of consciousness caused the Navy to turn down his enlistment for years after his graduation from high school -- again no compensation. No compensation for these losses -- but why should there have been? We paid for medical care through our premiums, and we got the medical care (after paying deductibles and co-payments) that we had paid for and contracted for.

Omitted from your account are the contracts (if more than one) covering his health insurance.

Posted by: contentious on January 12, 2006 at 9:11 PM | PERMALINK

I didn't even attempt a lawsuit or settlement for this very reason. In my state the cash would have just been handed over to the insurance company. Insurance companies would be smart to come up with a compromise that encouraged their partial reimbursement.

Posted by: ranaaurora on January 12, 2006 at 11:43 PM | PERMALINK

I didn't even attempt a lawsuit or settlement for this very reason. In my state the cash would have just been handed over to the insurance company. Insurance companies would be smart to come up with a compromise that encouraged their partial reimbursement. - ranaaurora

After reading through this thread, and having my eyes opened to just how insurance works (or doesn't), I have to agree. Why waste the time if it is all going to the insurance company anyway. Fuck them!

Posted by: Eric Paulsen on January 13, 2006 at 2:40 AM | PERMALINK

With my car insurance, the insurance company would be the one chasing the other person in court. So it'd make sense that they'd get a crack at any payoff.

It really doesn't seem fair that there would have to be a fight between a person and their insurance company over such an issue.

I suppose, though, if they got access to damages beyond what they've paid out they'd be more willing to go to court to defend their client or support legislation that doesn't limit payouts.

...I can't believe I just said that.

Posted by: Crissa on January 13, 2006 at 3:18 AM | PERMALINK

PS - someone else doesn't have to work hard for the money that insurance or defendents pay out.

Because it's already been paid in premiums to insurance companies, or already part of the defendents' portfolio.

When you make a promise or a contract you'd darn well better keep it.

Posted by: Crissa on January 13, 2006 at 3:21 AM | PERMALINK

Contentious,

Simply put. My client got a $350k jury verdict. He was awarded it, I fought to make it happen.

ERISA uses federal law to override state law to state that before he sees a dime, or I see a nickle, that the health insurance gets paid back every penny they spent.

So out of a $350k verdict and $30k insurance money , the health insurance gets the whole $30k instead of the injured party (and his attorney) getting anything.

Under state law, there would be an apportionment. You would sit down and say "There's not enough money to go around. What do we do to make this fair to everyone?"

Federal law preempts that and gives the money to Wal-Mart.

Oh. And by the way, this is a guy making about $10 an hour as a Wal-Mart employee. It is the health insurance that comes with the job. He did not bargain for it.

Posted by: Dave on January 13, 2006 at 5:33 AM | PERMALINK

Contentious,

You make a number of good points, but you're mixing up one thing. Health insurance and negligence.

I'm sorry for the difficulties your son went through. It sounds as if he had a tough time of it.

Health insurance covers his medical bills. It does NOT cover pain, suffering and the difficulties he went through. It covers medical bills. You can obtain health insurance on you and your family, in case they get sick or injured.

However, if they get injured through someone else's negligence. If your son got those same injuries because a drunk driver crossed a median and slammed into his car head on, the driver would be responsible for making your son whole. He would be responsible for putting him back in the place he was before the collision.

Of course that's a legal fiction because he can't wave a wand and *really* put your son back in the position before the collision, the only thing the judicial system can make him do is pay money.

That money can go to fix, help and make up for problems that occurred because of the drunk drivers negligence. Past doctor's bills, future medical expenses, past lost wages, future lost wages or loss of earning capacity. Those are hard costs and ascertainable.

According to the laws of most states, the drunk driver is also responsible for loss of opportunity, loss of enjoyment of life and yes the dreaded pain and suffering. All those things your son went through that he would not have gone through if he hadn't been slammed into by a drunk driver.

How do you put a price tag on that? Well, there's no exact way to do that. You can't go down to the store and buy a box of 'pain and suffering' or a jar of 'enjoyment of life'. So there's no market value on that. That's what you have 12 people in the jury to determine.

They put a price tag on that based on the severity of the injury and the amount of time the person will have to bear that. And yes, it's odd reducing those factors to money, but that's the only remedy we have.

It all boils down to making the negligent party (the drunk driver in my example) responsible for their actions. He SHOULD be responsible for his actions.

Health insurance is only responsible for paying medical expenses. They should NOT be responsible for any of the other difficulties an injured party has.

Posted by: Dave on January 13, 2006 at 5:44 AM | PERMALINK

Crissa: PS - someone else doesn't have to work hard for the money that insurance or defendents pay out.
Because it's already been paid in premiums to insurance companies, or already part of the defendents' portfolio.

Well, it had to be earned before it could be paid as benefits. Once paid out for medical care, it has to be replaced by the premiums levied on earnings.


Dave, what became of the $350k verdict money?

Oh. And by the way, this is a guy making about $10 an hour as a Wal-Mart employee. It is the health insurance that comes with the job. He did not bargain for it. The insurance coverage is a part of his pay. You don't mention what kind of contract he signed when he signed up to work for WalMart.


It all boils down to making the negligent party (the drunk driver in my example) responsible for their actions. He SHOULD be responsible for his actions. The issue of subrogation is whom he is responsible to first. I have avoided the topic of fault, focusing on insurance, premiums, and contracts. However, automobile liability insurance also only pays for actual damages, and does not have an extra penalty for "punishment". (That is, "fault" only determines whose insurance company pays and whose premiums are subsequently raised.) Had the driver been responsible (speeding, for example) his insurance would have covered the medical costs, and my insurance company would have collected that money from his insurance company, with none of it coming to me (who paid the premiums) or my son (the one who suffered.)

It sounds from the description of your case so far that the case might be a better illustration for the need for better national health insurance than the narrow issue of subrogation. You mentioned the worry about future medical bills arising from the same initial event -- is it certain that they are not covered should there be sequelae? Was there a cap on the maximum benefit paid out?

Posted by: contentious on January 13, 2006 at 8:57 AM | PERMALINK

Contentious,

The verdict was for $350k. His actual damages were $350k. Actual damages includes pain and suffering, loss of enjoyment of life and so forth as I listed above. A negligent party is responsible for that.

South Carolina only requires $15k in insurance. We had the at fault driver's insurance of $15k and our guys UIM of $15k.

While the verdict was for $350k, there is only $30k insurance money. The at-fault driver is an illegal alien (undocumented worker) with no assets The only money there is to get is the insurance money of $30k. Wal-Mart gets it all.

State law would apportion it so that every one gets a little. The ERISA law that they're talking about changing would give it all to Wal-Mart.

This isn't about whether my guy is covered for health insurance, it's about who gets the money when there's not enough to go around. If there's enough money to go around, then of course the health insurance should be reimbursed.

Posted by: Dave on January 13, 2006 at 10:39 AM | PERMALINK

'While the verdict was for $350k, there is only $30k insurance money'

I see your point regarding Walmart getting the 30K in insurance money. I dont understand what happened to the other 350K. Can you clarify?

Thanks

Posted by: amy on January 13, 2006 at 11:47 AM | PERMALINK
I dont understand what happened to the other 350K.

Since the guy only had $30,000 in insurance, I am assuming that, notwithstanding the verdict, he had no assets to pay the remaining judgement, and it became one of the vast pool of uncollected and uncollectable judgements floating around the country. There was no "other $350k". That was the measure of actual damages awarded. The $30k in insurance coverage was all that was paid.


Posted by: cmdicely on January 13, 2006 at 12:15 PM | PERMALINK

Correct.

It went poof. There was no other money left of the $350k. The only insurance money was $30k.

Wal-Mart got it all to reimburse it for the health insurance.

The injured party got no money. The attorney bringing the case got no money. In fact, not only did the lawyer work for free, he wasn't reimbursed the out of pocket expenses of $3-4k in bringing the suit.

Wal-Mart got it all.

That's the effect of the ERISA changes. That's why it screws the little guy.

Posted by: Dave on January 13, 2006 at 12:19 PM | PERMALINK

This all brings up something tangentially relevant to the main post -- I've often thought, though the parameters and restrictions on such a thing would be tricky -- that some public mechanism to provide, under certain conditions, advance payment of judgements for actual damages from public funds, with the public agency then gaining the right to collect the judgement, would be desirable.

Posted by: cmdicely on January 13, 2006 at 12:48 PM | PERMALINK

rusrus wrotewrote:

"Republican lawmakers should be forced to read these bills aloud in a working-class bar just outside Pittsburg. If they make it out alive, then it can go to the floor for a vote."

Posted by: rusrus on January 12, 2006 at 2:38 PM | PERMALINK


Ditto!

Posted by: MarkH on January 13, 2006 at 7:00 PM | PERMALINK

It sounds like the Repubs want to make it unprofitable for an attorney to take a case when they know they're not going to see much or any reward. This sounds like a direct assault on attorneys who take civil cases and then maybe make political contributions to Democrats.

Why do the Republicans wish to discriminate against good hard-working honest "traditional family values" Americans?

Do most Republicans who voted for Bush and their Republican Congresspersons think this is what they were going to get? I can't imagine they would've.

Posted by: MarkH on January 13, 2006 at 7:19 PM | PERMALINK

Dave, in your original post you wrote: I'll give you a simple example. I'm a plaintiff's attorney. A few years ago I had a client who had a broken hip. After two surgeries and a partial hip replacement he had $72,000 in doctor's bills.
[new paragraph]
We went to court and got him a $350,000 verdict. There was only $30,000 in insurance. (We currently have a bad faith claim against the at fault driver's insurance company who failed to turn over their $15,000 in insurance money and will try to collect the rest of the verdict against them, but that is a whole new lawsuit against the insurance company).

Disregarding the "whole new lawsuit", against whom was the $350k verdict decided? I gather from cmdicely's and your subsequent posts that the $350k was assessed against a party that didn't have it. In that case, it seems that WalMart paid for the medical care, and received $30k from the other insurance company. that sounds fair to me.

It seems that WalMart paid his bills because you subsequently wrote: He had health insurance. His health insurance pays when he got hurt.

Will WalMart pay for his future medical expenses arising from this accident?

All accidents arising from drunk driving are sad and discouraging. When my wife was an ICU nurse she took care of 4 members of a family who had been hit by a drunk driver, 3 of whom subsequently died, two of them parents leaving behind an orphaned child. I don't see how changing the subrogation would create justice in your client's case. That requires the SC legislature to write a requirement that drivers carry higher liability coverage. Even then there will be cases where the coverage is insufficient to the tragedy.

Lots of people have worked in vain to make drunk drivers accountable for the damage that they do. Ironically, the repeal of Prohibition led to an immediate and sustained increase in drunk driving fatalities (as well as an increase in alcohol-related killings like liquor store robberies.) I would like to see a pool of money created from a tax on alcohol to ameliorate the tragedies, but I doubt such an idea would be adopted.

Posted by: contentious on January 14, 2006 at 3:04 AM | PERMALINK

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Posted by: actor, cartoon on January 14, 2006 at 2:03 PM | PERMALINK




 

 

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