Subrogration of Automobile Med Pay in Florida
by Eugene G. Beckham
Controversy exists among insurers in Florida concerning whether or not automobile medical payments ("Med Pay") coverage may be subrogated. This article examines automobile Med Pay subrogation and the rationale for and against automobile Med Pay subrogation. For the purpose of this article, subrogees are insurers which have paid benefits and subrogors are insureds who have received first party benefits.
Florida commenced its no-fault automobile insurance system in 1971 and it was officially known as the Florida Automobile Reparations Reform Act. 1 It was renamed the Florida Motor Vehicle No-Fault Law in 1982. 2
The basic tenet of the no-fault system is that every eligible individual purchases the "required security" for themselves, replacing the common law system where an insured person could be without coverage for accident related medical expenses and lost wages if injured by an uninsured tortfeasor. The inherent fairness of the system is that those paying for the coverage are covered regardless of fault.
All insured individuals are covered by automobile personal injury protection ("PIP") policies covering both medical expenses and lost wages. 3 All PIP policies must have minimum limits of $10,000.00. 4Vehicle owners not purchasing the required coverage are violating the law. 5
The Florida Motor Vehicle No-Fault Law 6 is part of Florida's statutory scheme regulating motor vehicle and casualty insurance contracts. 7PIP is mandatory insurance for all noncommercial vehicles registered and licensed in Florida or that are in the state for extended periods. 8PIP is statutorily defined and pays 80% of injured motor vehicle occupants' medical bills and 60% of lost wages after the deductible. 9
Owners of vehicles with PIP coverage are immune from PIP subrogation claims and are provided with limited immunity from third party claims. 10 Uninsured owners of vehicles without PIP coverage are subject to subrogation claims for PIP payments and do not enjoy any immunity from personal injury claims. 11 Although the initial no-fault system provided for subrogation of PIP, 12 the right to PIP subrogation was eliminated in 1976 13 so there is now no subrogation of PIP payments among those in the no-fault system. 14
PIP is not the only mandatory automobile insurance coverage in Florida. Property damage ("PD") liability coverage is also required for all vehicle owners. 15 Proof of both PD and PIP insurance is required to register a vehicle. 16 In addition to these two required coverages, other optional automobile insurance includes collision, bodily injury ("BI") liability, uninsured/underinsured motorist ("UM") and Med Pay coverages.
Subrogation is available for collision claims under the tortfeasors' PD coverage when automobile insurers pay for damages to their insured vehicles. 17 Third party PD payments may also create subrogation or contribution rights. After paying UM claims for personal injuries, insurers may assert subrogation rights against the uninsured tortfeasors for the UM payments. 18 Florida courts have upheld the subrogation rights of health care insurers in automobile cases involving personal injuries. 19
In automobile cases where PIP coverage exists, insureds' claims for pain and suffering are subject to threshold limitations of permanent loss of an important bodily function, permanent injury, scarring or disfigurement, or death 20 while any injury, whether permanent or not, is a basis for recovery outside the automobile no-fault system. 21 If no threshold injury is found, tortfeasors with PIP coverage are immune from liability for most tort claims. 22
Automobile Med Pay Subrogation
Med Pay is a distinct, optional, supplemental coverage which, when purchased for an additional premium, pays the 20% of medical bills not covered by PIP. 23 Med Pay is a separate coverage for which a separate premium is paid and is completely distinct from PIP. 24 Med Pay does not compensate for lost wages. 25
In Florida, subrogation for all types of Med Pay is allowed and there is no authority which makes automobile Med Pay an exception. 26 Some confusion undoubtedly arises because the case law is not as clear and concise as would be preferred. An impediment to obtaining a clearly stated case on the subject is the Medical Payment Subrogation Arbitration Agreement which requires signatories to arbitrate claims instead of litigating them in court.
Perhaps the best articulation of the rule is found in Rodriguez v. Travelers Insurance Co. 27 where Mrs. Rodriguez was insured under a Travelers policy which provided her with $5,000.00 in PIP and $1,000.00 in automobile Med Pay benefits. The trial court denied Mrs. Rodriguez' motion for equitable distribution of Med Pay benefits based on a claimed insufficient third party recovery and the Third District Court affirmed, holding:
The trial court was correct in rejecting the plaintiff's attempt to equitably distribute the amounts paid under the medical payments coverage. According to the terms of the Travelers policy, which was in evidence below, the insurance company, upon payment of these benefits, became subrogated to Mrs. Rodriguez's rights to recover those amounts against the third-party tort-feasor. Since this provision is valid and enforceable and there is no statutory provision to the contrary, we hold that its existence precludes the plaintiff's attempt, in effect, to reduce the amount paid based upon "equitable principles.28"
The supreme court approved the district court decision, stating:
A second issue in the Rodriguez case concerns a claim by the insured, Rodriguez, that Travelers, as carrier, should be required to equitably adjust medical payment benefits which the carrier was awarded under the express subrogation provisions of the policy. For the reasons expressed by the district court, we reject this contention and approve the decision of the district court.
In summary, we approve the decision of the district court in Rodriguez on both issues . . . . 29
In both Rodriguez v. Travelers Insurance Co. and DeCespedes v. Prudence Mutual Casualty Co., the policies containing subrogation clauses were in evidence and the court relied on the subrogation clauses. 30 Another appellate court refused to reverse a trial court which gave the insurer equitable distribution of its automobile Med Pay subrogation rights instead of full reimbursement where the policy was not part of the record on appeal. 31 It would seem that disallowing automobile Med Pay subrogation by requiring a policy to provide for Med Pay subrogation ignores insurers' legal (equitable) subrogation rights and is contrary to the general rule that the terms of the underlying policy are not at issue in a subrogation action. 32
Another source of confusion concerning Med Pay subrogation is that most of the cases rely on repealed statutes 33 dealing with collateral sources of indemnity which authorized equitable distribution of recoveries from tortfeasors to satisfy automobile insurers' subrogation rights. 34 Florida's current statute dealing with equitable distribution of collateral source payments is section 768.76, Florida Statutes (1995).
Generally, automobile Med Pay subrogation claims are the same as ones for other types of Med Pay subrogation. Med Pay coverage is also available in liability policies unrelated to automobiles to pay third party medical bills regardless of fault. Subrogation actions for Med Pay may not be commenced until after the insured subrogor has concluded personal injury claims against the tortfeasor. 35 In many lawsuits by insureds against tortfeasors, the insureds will endeavor to increase the amount of damages claimed by including the insurer's subrogated interest. 36 If the tortfeasors' insurance limits are exhausted, the insured can claim that he or she was not fully compensated and demand an equitable distribution whereby the insurer will receive only a portion of its subrogated interest. 37
Insurers intending to subrogate automobile Med Pay must wait until insureds' personal injury claims are settled or until the insureds announce their intention to not pursue such claims because the tortfeasors' BI liability coverage will pay both the insureds' claim and the insurer's subrogation claim. The insurer is not allowed to deplete the fund from which its insureds will be compensated. If the tortfeasors' BI coverage is exhausted, the Med Pay subrogation claim can be pursued directly against the underinsured tortfeasors.
The statute of limitations will normally be the same for the insurer and the insureds when suing the tortfeasors; four years from the date of the injury or damage. 38 The six month limitation on contribution actions against the state and its subdivisions 39 cannot be circumvented simply by calling it a subrogation claim because the two causes of action are distinct. 40 If an insurer becomes insolvent and its duties are assumed by the Florida Insurance Guaranty Association, 41there is no right of subrogation against FIGA. 42
Med Pay subrogation sometimes causes problems with insureds when they settle personal injury claims. Prudent defense counsel and adjusters will demand indemnification or "hold harmless" agreements when making BI settlements trying to ensure that all claims will be extinguished. Such contracts typically provide that the insureds agree to indemnify and hold harmless the tortfeasors and their insurer from any and all liens, subrogation interests, rights to reimbursement and all other claims of third parties that may have made payments to claimants.
Many plaintiffs' attorneys do not consider the potential for Med Pay subrogation when their clients execute indemnification agreements holding the tortfeasors harmless as part of settlements. If an insured has executed and delivered an indemnification agreement to a tortfeasor, that tortfeasor will try to refer a subrogation claim back to the insured instead of addressing it directly. Once insureds realize that the right to Med Pay subrogation exists, a negotiated resolution is often possible between the insured and insurer. If an insured refuses to pay, filing suit against the tortfeasors and forcing them to invoke the terms of the insured's indemnity agreement by way of a third party action is best. This may also obviate an insurer's liability for attorney's fees. 43
A release executed by an insured may extinguish the insurer's subrogation rights. 44 If a release is given without the consent of the insurer and if a right of subrogation exists, such releases are breaches of both the cooperation and subrogation clauses found in virtually every insurance contract. However, if the party receiving a release from an insured has notice of an insurer's perfected subrogation rights when the release is obtained, such a release will not bar a subrogation action by the insurer against the putative releasee. 45
Typical arguments against automobile Med Pay subrogation include: it is a prohibited assignment of a cause of action, BI coverage has no exposure without a permanent injury, automobile Med Pay is somehow the same as PIP or is an extension or supplement to PIP which enjoys the same subrogation prohibition, allowing automobile Med Pay subrogation will bankrupt the no-fault system by creating unforeseen liabilities and raise the costs of adjusting, and claims that only lawyers will prosper by allowing it.
Historically, the initial legal attack on automobile Med Pay subrogation was that it constitutes an assignment of a personal injury claim. Of course, assignment of personal injury claims is prohibited. This position has not persuaded Florida's courts. 46
Arguments that automobile Med Pay is somehow the same as PIP or is an extension or supplement to PIP simply are wrong. PIP is a statutory creation which is well defined. If Med Pay were truly the same as PIP, it would not exist and no additional premium could be charged. Med Pay is an optional coverage which pays the 20% of medical expenses not covered by PIP; it exists to "pay the portion of any claim for personal injury protection medical benefits which is otherwise covered but not payable." 47 As long as PIP does not pay 100% of covered medical expenses and Med Pay fills the void, Med Pay and PIP cannot be considered identical. As long as PIP is mandatory and Med Pay is optional, they cannot be the same. More to the point, as long as an additional premium is charged for Med Pay, it cannot be identical to PIP which has its own separate premium.
Some claim that allowing Med Pay subrogation will somehow bankrupt the no-fault automobile insurance system. For instance, the cost of investigating medical histories of insureds is claimed to be too expensive. These fears are in part based on the concern that Med Pay subrogation claims are paid from BI coverage, therefore, Med Pay claims against tortfeasors are subject to the defenses normally used in personal injury cases such as comparative negligence, failure to mitigate damages, unreasonable and excessive treatment, overpayment, seatbelt defense, and so forth. It is up to each insurer to decide how to handle its claims. Similarly, some insurers do not trust the efforts of fellow companies to examine Med Pay claims that are submitted and believe subrogation will lessen the scrutiny such claims are given.
Another recurring problem arises when tortfeasors and their insurers realize that Med Pay subrogation is paid from BI coverage and not PD coverage and want to apply personal injury limitations. They may assert that unless there is a permanent injury, there is no payment from BI coverage. Such a position is incorrect because the threshold requirement in the statute 48 applies only to specific tort damages and not to medical bills or the remaining 20% paid by Med Pay. 49
Arbitration Forums, Inc. administers arbitrations pursuant to various intercompany arbitration agreements. One such agreement is the Medical Payment Subrogation Arbitration Agreement. This agreement requires signatories to arbitrate claims under various conditions spelled out more fully in the Medical Payment Subrogation Arbitration Agreement Rules and Regulations. The Medical Payment Subrogation Arbitration Forum is not limited to automobile Med Pay. The agreement provides that arbitrators shall be selected on the basis of their experience and qualifications. 50 Presumably, such experience and qualifications will enable the arbitrators to follow the law and allow automobile Med Pay subrogation. An unfortunate omission from the Medical Payment Subrogation Arbitration Agreement Rules and Regulations is the requirement that, "Local substantive law will control the decision on all issues." which is typically found in Arbitration Forums' rules. 51 In this way, Arbitration Forums currently addresses automobile Med Pay subrogation claims on a case-by-case basis.
When presenting a property damage claim in the Automobile Physical Damage Subrogation Arbitration Forum, the arbitrators are not likely to be acquainted with automobile Med Pay subrogation. The correct way to present claims for both automobile property subrogation and Med Pay arbitration is to file contention sheets in each respective forum following the rules for each forum and noting the companion claim. Of course, it is necessary to make sure that the respondent insurer is signatory to both agreements. Not all members of the Automobile Physical Damage Subrogation Arbitration Forum are members of the Medical Payment Subrogation Arbitration Forum.
A subrogation claim for Med Pay is no different than a claim by a person against a tortfeasor for medical expenses as there is nothing in the Florida Motor Vehicle No-Fault Law which precludes it. 52 Florida law allows subrogation of automobile Med Pay.
See §§627.730-627.741, Fla. Stat. (1971).
See §627.730, Fla. Stat. (Supp. 1982).
See §627.736(1), Fla. Stat. (Supp. 1996).
See §§324.022, 324.221, 627.734, Fla. Stat. (1995).
See §§627.730-627.7405, Fla. Stat. (1995 & Supp. 1996).
See §§627.7261-627.745, Fla. Stat. (1995 & Supp. 1996).
See §627.733, Fla. Stat. (1995). Some commercial vehicles are not required to have PIP coverage. See §§627.733(1), 627.7415, Fla. Stat. (1995); see also § 627.732(1)(b), Fla. Stat. (1995) (defining "commercial motor vehicle").
See §627.736(1), Fla. Stat. (Supp. 1996).
See §627.736(3), Fla. Stat. (Supp. 1996); see also §627.732(3), Fla. Stat. (1995) (defining "owner").
See §§627.733(4), 627.736(3), Fla. Stat. (1995 & Supp. 1996).
See §627.736(3), Fla. Stat. (1971); Purdy v. Gulf Breeze Enters., 403 So. 2d 1325, 1328 (Fla. 1981).
See §627.736, Fla. Stat. (Supp. 1976).
See §627.736(3), Fla. Stat. (Supp. 1996).
See §§324.022, 627.7275(1), Fla. Stat. (1995).
See §§320.02(5), 627.733(6), Fla. Stat. (1995).
See Rosenthal v. Scott, 150 So. 2d 433, 438-439 (Fla. 1963) (on rehearing).
See Allstate Ins. Co. v. Boynton, 486 So. 2d 552, 558 (Fla. 1986).
See Blue Cross & Blue Shield, Inc. v. Matthews, 498 So. 2d 421, 423 (Fla. 1986).
See §627.737(2), Fla. Stat. (1995).
See §627.733(4), Fla. Stat. (1995).
See §627.737(1), Fla. Stat. (1995).
See §627.736(4)(f), Fla. Stat. (Supp. 1996).
See State Farm Mut. Auto. Ins. Co. v. Swearingen, 590 So. 2d 506, 506-507 (Fla. 4th DCA 1991).
See §627.736(4)(f), Fla. Stat. (Supp. 1996).
See Rodriguez v. Travelers Ins. Co., 367 So. 2d 687 (Fla. 3d DCA 1979), approved, 387 So. 2d 341 (Fla. 1980); Maryland Cas. Co. v. Plant, 208 So. 2d 280 (Fla. 1st DCA 1968); DeCespedes v. Prudence Mut. Cas. Co., 193 So. 2d 224 (Fla. 3d DCA 1966), approved, 202 So. 2d 561 (Fla. 1967); cf. Shelby Mut. Ins. Co. v. Birch, 196 So. 2d 482 (Fla. 4th DCA) (following DeCespedes v. Prudence Mut. Cas. Co.) (dissenting opinion relates facts), approved, 202 So. 2d 561 (Fla. 1967); see generally 31A FLA. JUR. 2D Insurance §3468 (1996) ("[F]lorida courts have upheld the validity of medical payments subrogation . . . .").
367 So. 2d 687.
Rodriguez v. Travelers Ins. Co., 367 So. 2d at 689 (citation and footnotes omitted)
(emphasis supplied); cf. Eckert v. Government Employees Ins. Co., 334 So. 2d 119, n.2 (Fla. 3d DCA 1976) ("The absence of a separate statute for such recovery by an insurer will not operate to deny to it the right to sue and recover under the common law doctrine of subrogation.") (UM subrogation).
Travelers Ins. Co. v. Rodriguez, 387 So. 2d at 343.
See Rodriguez v. Travelers Ins. Co., 367 So. 2d at 689; DeCespedes v. Prudence Mut. Cas. Co., 193 So. 2d at 228.
State Farm Mut. Auto. Ins. Co. v. Gordon, 319 So. 2d 36 (Fla. 1st DCA 1975); cf. Applegate v. Barnett Bank, 377 So. 2d 1150, 1152 (Fla. 1979) (holding reversible error must be demonstrated by record).
See Firestone Serv. Stores v. Wynn ex rel. Home Ins. Co., 179 So. 175, 178 (Fla. 1938); cf. Eckert v. Government Employees Ins. Co., 334 So. 2d at 122 (Fla. 3d DCA 1976) (acknowledging insurers' common law subrogation rights).
See section 627.7372, Florida Statutes (1991), repealed by chapter 93-245, section 3, at 2439, Laws of Florida and section 627.736(3), Florida Statutes (1975), reprinted in 18C Florida Statutes Annotated 318-319 (1996), amended by chapter 76-266, section 4, at 720-721, Laws of Florida.
The decision authorizing subrogation of Med Pay in Maryland Casualty Co. v. Plant, 208 So. 2d at 281 does not say whether the defendant, Plant, was the tortfeasor or the insured subrogor. The decision in Shelby Mutual Insurance Co. v. Birch, 196 So. 2d at 482 is likewise silent on that question although the dissenting opinion states that the Birches filed suit against their insurer, Shelby Mutual, when it refused to pay after the Birches executed releases in favor of the tortfeasor thereby extinguishing the insurer's Med Pay subrogation rights. See id. at 482-483 (Andrews, J., dissenting).
See §768.76(4-9), Fla. Stat. (1995).
See §768.76(1), Fla. Stat. (1995).
See §768.76(4, 5), Fla. Stat. (1995).
See §95.11(3)(a), Fla. Stat. (Supp. 1996) (negligence); see also §§768.28(6)(a) (three year limitation in actions against state and its subdivisions), 768.31 (contribution among tortfeasors) (one year from payment or date judgment no longer subject to review), Fla. Stat. (1995 & Supp. 1996).
See § 768.28(6)(a), Fla. Stat. (Supp. 1996).
Cf. Allstate Ins. Co. v. Metropolitan Dade County, 436 So. 2d 976, n.2 (Fla. 3d DCA 1983) (stating courts look at claims' substance not parties' labels) (finding untimely subrogation action barred).
See § 631.57(1, 2), Fla. Stat. (1995).
See § 631.54(3), Fla. Stat. (1995).
See § 627.428, Fla. Stat. (1995) (authorizing fees); see also Insurance Co. of N. Am. v. Lexow, 602 So. 2d 528, 531 (Fla. 1992) (holding insurer liable for fees upon unsuccessfully suing insured for return of payment).
See High v. General Am. Life Ins. Co., 619 So. 2d 459, 461 (Fla. 4th DCA 1993).
See Dadeland Dodge, Inc. v. American Vehicle Ins. Co., 698 So. 2d 929, 931 (Fla. 3d DCA 1997).
See Shelby Mut. Ins. Co. v. Birch, 196 So. 2d at 482-486 (Andrews, J., dissenting); cf. Blue Cross & Blue Shield v. Matthews, 498 So. 2d at 422 (authorizing subrogation for health insurers' Med Pay in automobile accidents); see generally J.A. Bock, Annotation, Subrogation Rights of Insurer Under Medical Payments Provision of Automobile Insurance Policy, 19 A.L.R.3D 1054 (1968).
§ 627.736(4)(f), Fla. Stat. (Supp. 1996).
See § 627.737(2), Fla. Stat. (1995).
See Mansfield v. Rivero, 620 So. 2d 987, 989-990, n.2 (Fla. 1993); see also Iowa Nat'l Mut. Ins. Co. v. Worthy, 447 So. 2d 998, 1001 (Fla. 5th DCA 1984) ("without meeting the thresholds in section 627.737(2), Florida Statutes, the tortfeasor and his liability carrier [are] liable to the injured party for the 20 percent of medical expenses not payable under the PIP coverages provided by section 627.736(1)(a)").
See MEDICAL PAYMENT SUBROGATION ARBITRATION AGREEMENT, ART. FOURTH.
See, e.g., AUTOMOBILE PHYSICAL DAMAGE SUBROGATION ARBITRATION FORUM R. 5-3.
See, e.g., Rodriguez v. Travelers Ins. Co., 367 So. 2d at 689.