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Avoid the Insurance Lien Trap

Unrepresented parties with automobile accident claims often do not realize that they may be entitled to require their automobile insurance company to waive its right to recover for medical bills, and lost wages paid on behalf of the party.

One of the most critical tasks in representing an injured person is to identify the insurance company that should be making payments on the medical bills being incurred as the result of an accident. Often multiple insurance companies may be required to make payments on behalf of an injured person. The automobile insurance on the automobile in which the injured person was traveling is usually primarily responsible for payment of reasonable and necessary medical bills related to treatment for injuries sustained in the accident. This is commonly referred to as PIP coverage. If the injured person was on the job at the time of the accident, the worker’s compensation insurance carrier for the employer may become the primary insurance carrier. Some injured persons, such as pedestrians, bicyclists, and motorcyclists, may not have PIP coverage of their own, but may be able to make a claim against the PIP coverage of the party that caused the accident. In some circumstances the injured person’s health insurance becomes the primary insurance carrier. If PIP, workers compensation, or other coverage is not available, expires, or is exhausted, the injured person’s health insurance can become the secondary source for insurance benefits. It is also not uncommon for Medicare to make payments on behalf of an injured party.

The above-described insurance carriers are typically entitled to be reimbursed for the payments they make on behalf of an injured person. The reimbursement comes from the claim made against the insurance company that covers the person that was at fault for an accident. This process is called subrogation. In handling a personal injury claim, it is vital to know what bills have been paid and by which companies, and who is entitled to subrogation. It is also vital to account for these liens in the process of settling the claim. A person settling a personal injury claim should always make clear, in settlement negotiations, who is responsible for reimbursing these liens. The question is whether the insurer for the driver that was at fault will be reimbursing the liens, or whether the injured person will be expected to reimburse the liens from their settlement proceeds. It would be a tragedy, if an injured person settled a case not realizing that they were responsible to pay insurance liens from their share of an injury settlement. In some instances, an injured person must obtain the consent of a lienholder before even settling a claim.

There are some circumstances where an insurance carrier may not be entitled to recover some or all of payments made on behalf of an injured person. This is true for PIP coverage, when the economic damages (medical bills, lost wages, travel expenses, etc.) exceed the insurance available. For example, if the party that caused an accident has limits of $25,000.00 per person and the injured party has PIP coverage of $15,000.00, the injured person has $40,000.00 of available insurance. If economic damages exceed $40,000.00, PIP may be required to waive their right to reimbursement to the extent that economic damages exceed the insurance available. The result can be the difference between having PIP take the full $25,000.00 from the insurance company of the party at fault as reimbursement of the PIP lien, and having PIP walk away, leaving the $25,000.00 in the hands of the injured person. An injured person does not want to make that mistake.

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