Several bills up for hearings this week in the Colorado legislature that are being pushed by the Colorado Trial Bar are likely to contribute to frivolous lawsuits that drive up insurance costs for consumers, according to the Property Casualty Insurers Association of America (PCI).
HB 1168, scheduled for hearing today, would favor attorney interests by amending current statute regarding subrogation to effectively eliminate the longstanding right of insurers to obtain reimbursement for the benefits they have already paid on behalf of their customers, PCI said.
“Insurers routinely use subrogation or reimbursement to recover medical expenses paid on behalf of their customers when that customer was injured due to the fault or negligence of another,” said Kelly Campbell, PCI vice president. “Without the ability to subrogate appropriately, insurers’ costs would increase and customers’ premiums could rise dramatically.”
HB 1168 would prevent insurers from recovering any amount unless and until the insured individual receives full compensation for all damages arising from his or her claim against the person who caused the injury, known as the “make whole” doctrine.
“The ‘make whole’ provision is an enormous loophole in this proposed legislation,” Campbell explained. “It means that any time a settlement does not provide the full amount claimed by the individual, which happens in nearly every case, the insurer could not recover any amount paid in medical expenses.”
Subrogation is rooted in the premise that a person who sustains an injury or incurs damage should not be allowed to profit from his or her loss. In court, individuals routinely seek and are awarded damages for medical expenses that their health plan has already paid. According to PCI, these “double recoveries” needlessly burden the system. In addition, reimbursement appropriately allocates the costs of an accident to the person who caused the accident and deters negligent behavior.
“Reimbursement and subrogation serve important cost containment and public policy goals,” Campbell said.
HB 1234, scheduled for hearing Thursday, would change Colorado law to allow insurance claimants who are unhappy with their claims handling to file a “second lawsuit” directly against an insurer. “This provision would very likely lead to an increase in the amount of litigation over bodily injury accidents of all kinds,” said Campbell. “It’s the Insurance Commissioner’s job to punish insurance companies if they engage in patterns of claims misconduct as opposed to the single acts this bill would now allow to be the basis of a lawsuit. When California tried this ‘second lawsuit’ rule, it led to dramatic increases in litigation.”
HB 1164, scheduled for hearing on Friday, would allow a plaintiff to serve an insurer when they are unable to locate the at-fault driver. It also creates the presumption that a plaintiff had uninsured motorist coverage when the defendant can’t be located. “The reasonable effort standard in HB 1164 is so low that an insured’s attorney is not required to do any real investigation into the tortfeasor’s whereabouts,” Campbell said.
The bill places insurers in the position of being the insured’s agent for service of process even as to allegations that may clearly be outside the scope of the insurance coverage but which “concerns an incident for which the insured can possibly claim coverage.”
SB 76, which passed out of committee on a party-line vote last week, and is scheduled to be heard on the Senate floor the week of February 22, would make it an unfair claims practice for a carrier to reward anyone for the denial of a claim or the delay of payment of a claim or the cancellation or rescission of an insurance policy. “This is an unnecessary bill that was already killed in the legislature last year,” Campbell said. “Current law already prohibits such conduct, and no evidence was produced last year that any carrier engages in such behavior. It has to be assumed that this bill is simply intended to enable plaintiffs’ lawyers to gain access to the compensation and bonus provisions of carrier executives.”
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