When a person is a victim of another person’s negligence, they expect to be compensated for their medical bills and out of pocket expenses, loss of income and for their pain and suffering.

Insurance plays a vital role in securing recovery for these losses. But what happens if the medical expenses exceed the amount of insurance coverage available to compensate the injured party?

Though no two injury cases are the same, some similarities exist in coverages which can be used to illustrate a typical coverage scenario.

Scenario One: Suppose Dorothy is driving and Sam fails to stop at a stop sign and T-boned her vehicle. Dorothy is injured and is taken to the hospital. She has car insurance, including PIP (personal injury protection) in the amount of $10,000, as well as health insurance. The hospital bills skyrocket because she needs surgery and the $10,000 PIP coverage is quickly exhausted. Her health insurance begins to pay for her care.

After Dorothy is fully recovered and ready to make a claim to recover for her losses her medical bills total $100,000, $10,000 paid by PIP and $90,000 paid by her health insurance. These policies paid for injuries that arose out of someone else’s negligence so the insurance companies are entitled to be paid back, this is called subrogation. Dorothy was out of work for two months and has lost income of $7,000.

Scenario Two: Suppose the at fault driver had insurance coverage in the amount of $250,000 and Dorothy had UIM (Underinsured Motorist) coverage in the amount of $250,000. After negotiations the case settles for $360,000, $250,00 from the at fault driver and $110,00 from Dorothy’s UIM. The PIP is entitled to be paid back as is the Health Insurer’s subrogation lien, and Dorothy would receive the rest, $260,000, to pay the expenses and to compensate her for her pain and suffering and future medical expenses.

Now, let us suppose the same scenario exists but the at fault driver only has $25,000 in coverage and Dorothy only has $50,000 in UIM coverage. There is not enough to pay back the PIP and the Health Insurer and there is certainly not enough to make Dorothy “whole”, so the law in the state of Washington would apply which states that an injured party must be fully compensated before any other party is entitled to receive anything. Clearly Dorothy will not be made whole so she will get the entire $75,000 and the PIP and Health Insurer will get nothing. The at fault driver has no assets to collect.

These principals are fairly static. However, there is one factor that can impact this analysis with sometimes devastating consequences. If a person’s health insurance is an ERISA plan, the injured party is not entitled to be made whole which, under the above analysis, would leave Dorothy with nothing.

The Employee Retirement Income Security Act of 1974 (ERISA) covers certain insurance plans that are established or maintained by an employer or by an employee organization. The act does not apply to public health insurance programs or by plans provided by the government as an employer. When a plan does fall under the scope of ERISA they are in most cases exempt from state regulation as federal law preempts state law under the Supremacy Clause of the Constitution. ERISA plans that have language requiring reimbursement to the plan for costs expended for services to the insured due to the fault of another must be repaid if any recovery is made from the at fault party, without regard to whether or not the insured is made whole.

As one can imagine, this can create significant obstacles to recovery, especially where there are very high medical expenses.

ERISA Scenario: John and Susan were driving along a two lane highway when an oncoming vehicle entered their lane and struck them head on. Both passengers had to be taken by ambulance to the hospital and both suffered life altering injuries. The medical expenses after multiple surgeries exceeded $700,000. John and Susan had policy limits of $100,000 each and the at fault driver had $100,000 in limits for a total amount available for recovery of $400,000. John and Susan had PIP in the amount of $10,000 each, leaving the rest for their health insurance to pay, which they did. Because their health insurance was an ERISA plan, the Insurer was entitled to receive the entire $400,000 and John and Susan are left with nothing but their injuries.

Had it not been an ERISA plan the entire $400,000 would have been available to John and Susan as state law requires them to be made whole before any subrogated interests need be satisfied.

What can someone do to avoid this unjust result?

You have a choice of insurance plans through an employer, research them and get copies of the plan documents so you can review them to make sure you select a plan not administered under ERISA. If you do not have a choice, as in many cases where employers simply provide health insurance, get a copy of the plan documents and review them. If it is not an ERISA plan you will not be subject to the injustice John and Susan suffered. If it is an ERISA plan, increase your insurance limits and if possible, obtain an umbrella policy to limit the risk of being injured and having no means for recovery. If your employer changes your plan from one year to the next, make sure you check each time you have a new plan and proceed accordingly.

You cannot rely on other drivers to be adequately insured as the minimum amount required by law is only $25,000, and many times people simply do not insure themselves. Also, you should consider increasing your PIP coverage to the highest amount you can afford. Most people only maintain $10,000 in PIP. That can get exhausted almost immediately if an ambulance or ER visit is required, so increase those benefits!

Most of our clients who are put in one of these unfortunate situations have never considered the topics covered here. Take a few moments and protect yourself by asking a few simple questions and making sure you have an avenue for recovery if you are the victim of another’s negligence.

If you have any questions regarding these issues feel free to contact Todd S. Rayan or Peter J. Abbarno with Althauser Rayan Abbarno, LLP at 360-736-1301 or www.centralialaw.com. We offer free injury consultations and evaluation in our Centralia and Olympia offices.