Minnesota and Hawaii don’t have a lot in common. However, the Minnesota Court of Appeals – of all places – recently laid down some rather novel and earth-shattering law with regard to PIP subrogation in Hawaii. In American Family Mutual Ins. Co. v. American Automobile Ass’n d/b/a Auto Club Ins. Ass’n, 2013 WL 656493 (Minn. 2013), the Court single-handedly resurrected common law PIP subrogation in the Aloha State. PIP subrogation in Hawaii has been dead for years. Even PIP reimbursement rights have been in limbo and most practitioners even argued that it should be given last rites. Now, it is in full chaos. A quick history lesson is in order.
For many years, Haw. Rev. Stat. § 431:10C-307 gave PIP carriers a right of subrogation. In 1989, the Hawaii Legislature amended the statute to delete the words “Right of Subrogation.” The House Committee on Consumer Protection and Commerce explained that the reason for the amendment was to clarify the intent and meaning of § 431:10C-307, which is to reimburse the no-fault insurer for up to one-half of the maximum limits if the injured party recovered from the tortfeasor damages which duplicated the no-fault benefits already paid. This was also the original intent and meaning of its predecessor statute, Haw. Rev. Stat. § 294-7. The Legislature intended for the amendment to clearly reflect that the no-fault insurer’s right to reimbursement is available only when the claimant actually receives damages from the tortfeasor which duplicate the no-fault benefits already paid and that the insurer’s right to reimbursement is solely enforceable against the insured claimant.
Therefore, the new statute merely grants a PIP insurer the right to be “reimbursed” (not subrogated) 50% of the amount of no-fault benefits it has paid which are duplicated in a third-party recovery, up to the maximum limit defined in Haw. Rev. Stat. § 431:10C-103. Section 431:10C-307 currently reads as follows:
§ 431:10C-307. Reimbursement of duplicate benefits. Whenever any person effects a tort liability recovery for accidental harm, whether by suit or settlement, which duplicates personal injury protection benefits already paid under the provisions of this article, the motor vehicle insurer shall be reimbursed fifty per cent of the personal injury protection benefits paid to or on behalf of the person receiving the duplicate benefits up to the maximum limit. Haw. Rev. Stat. § 431:10C-307 (replaced § 294-7)(emphasis added).
The “maximum limit” referred to in the statute is defined in § 431:10C-103 as:
The total personal injury protection benefits payable for coverage under § 431:10C-103.5(a), per person on account of accidental harm sustained by the person in any one motor vehicle accident shall be $10,000, regardless of the number of motor vehicles or policies involved. Haw. Rev. Stat. § 431:10C-103.
Section 431:10C-103.5, referred to in the definition of “maximum limit,” includes the following:
(c) Personal injury protection benefits shall be subject to an aggregate limit of $10,000 per person for services provided under this section. An insurer may offer additional coverage in excess of the $10,000 aggregate limit for services provided under this section, or as provided by rule of the commissioner. Haw. Rev. Stat. § 431:10C-103.5.
The burden of proving duplication is on the PIP carrier. However, the reimbursement of PIP benefits is not allowed against UM/UIM benefits. Sol v. AIG Hawaii Ins. Co., 875 P.2d 921 (Haw. 1994). In fact, the Legislature clearly stated its intent to disallow the subrogation rights of the no-fault carrier against “optional additional” coverage. Id. Even if the insured purchases no-fault (PIP) coverage for an amount in excess of the statutory maximum, the insurer will only be entitled to reimbursement of 50% of the no-fault benefits paid. Id.
Therefore, looking only at the above statutes, it can be argued that a PIP carrier is entitled either to: (1) reimbursement of only $5,000 maximum (50% of the maximum aggregate limit); or (2) 50% of whatever limits the policy happens to provide by way of additional coverage. However, that is only the beginning of the confusion.
Haw. Rev. Stat. § 431:10C-307 also conflicts with the “Covered Loss Deductible” Statute found at § 431:10C-301.5, which provides that any bodily injury recovery is “reduced by $5,000 or the amount of PIP benefits incurred, whichever is greater, up to the maximum limit.” Haw. Rev. Stat. § 431:10C-301.5. In the late 1990s, a move toward holding down auto insurance premiums combined with tort reform efforts and § 431:10C-301.5 (Covered Loss Deductible [CLD] Statute) was enacted. Section 431:10C-301.5 provides as follows:
§ 431:10C-301.5. Covered loss deductible. Whenever a person effects a recovery for bodily injury, whether by suit, arbitration, or settlement, and it is determined that the person is entitled to recover damages, the judgment, settlement, or award shall be reduced by $5,000 or the amount of personal injury protection benefits incurred, whichever is greater, up to the maximum limit. The covered loss deductible shall not include benefits paid or incurred under any optional additional coverage or benefits paid under any public assistance program.
This conflict has not been resolved under Hawaii law. The “maximum limit” referred to in the conflicting statutes is defined in § 431:10C-103 as $10,000 per person. Haw. Rev. Stat. § 431:10C-103. Arguably, 50% of PIP benefits paid in excess of $10,000 should be reimbursed to the PIP carrier, although such reimbursement is rarely done in Hawaii. Others argue that § 431:10C-307 limits reimbursement to 50% of the maximum amount or $5,000. Third-party suits of less than $5,000 are not allowed. Therefore, if medical expenses are between $5,000 and $10,000, PIP benefits are subtracted from the verdict amount. State Farm v. Gepaya, 978 P.2d 753 (Haw. 1999).
This CLD Statute is interpreted by trial lawyers and the Hawaii Association for Justice as requiring up to a $10,000 deduction from any personal injury settlement or judgment, effectively eliminating any PIP subrogation or reimbursement rights, because the portion of the recovery “duplicating” PIP benefits is effectively removed from the recovery. They feel that when you deduct the CLD, there are no PIP benefits duplicated in the recovery subject to reimbursement under § 431:10C-307. Yet, there is some disagreement as to whether the CLD removes only up to the $10,000 maximum limit from the recovery or removes a larger amount in cases where the PIP carrier carried additional coverage in excess of the $10,000 aggregate limit.
Technically, reimbursement of PIP benefits under § 431:10C-307 has not been eliminated and is still permissible. However, if the maximum reimbursement is limited to 50% of the $10,000 maximum limit defined by statute, then the PIP carrier is limited to a maximum reimbursement of only $5,000 under any circumstances. This creates cost-effectiveness problems for subrogation professionals whose recovery is also subject to reduction for attorney’s fees under § 431:10C-211(b), which provides:
(b) A person who has effected a tort recovery, whether by suit or settlement, and who is sued by the insurer to recover fifty per cent of the personal injury protection benefits paid, under § 431:10C-307, may be allowed reasonable attorney’s fees and reasonable costs of suit. Haw. Rev. Stat. § 431:10C-211(b).
Therefore, carriers subrogating PIP benefits in Hawaii arguably must: (1) get over the hurdle of showing the tort recovery “duplicates” PIP benefits; (2) reduce it’s $5,000 recovery to compensate the plaintiff’s attorney for having tried, but failed to destroy their PIP subrogation rights; and (3) overcome the argument that the CLD Statute has already removed all PIP benefits subject to reimbursement from the tort recovery. If the PIP carrier has paid benefits in excess of $10,000, the 50% recovery increases exponentially and makes recovery more feasible for the carrier. However, all of this is assuming that the CLD Statute does not destroy the rights of reimbursement as argued by trial lawyers.
There is no current Hawaii legal authority supporting the argument posited by trial lawyers that the CLD Statute destroys our statutory right of reimbursement under § 431:10C-307. However, even if the court eventually buys into this argument, if the PIP carrier has paid out more than the $10,000 aggregate limit as defined by § 431:10C103.5 and referenced in the CLD Statute itself, the 50% reimbursement statute also references similar “aggregate limit” language when it says the PIP carrier shall be “reimbursed 50% of the PIP benefits paid to or on behalf of the person receiving the duplicate benefits up to the maximum limit.” So, while we can expect trial lawyers to argue that whatever amount is allowed for reimbursement is also deducted under the CLD Statute, they won’t be able to offer any support for their position.
Any effort to gerrymander or structure a settlement in such a way as to defeat “duplication” of PIP benefits is not allowed under Hawaii law. Hawaii maintains that an insured should not be permitted to abrogate the PIP carrier’s statutory right of reimbursement by the mere labeling of the tort recovery in the release. First Ins. Co. of Hawaii, Ltd. v. Jackson, 678 P.2d 1095 (Haw. App. 1984), rev’d on other grounds, Grain Dealers Mut. Ins. Co. v. Pacific Ins. Co., Ltd., 768 P.2d 226 (Haw. 1989). In addition, § 431:10C-307 (formerly § 294-7) imposes on the insured an obligation of good faith under objective standards in the settlement and release of his tort claim so that his insurer’s statutory right of reimbursement will not be cut off without a legitimate reason. Jackson, supra. Ironically, the new American Family decision by the Minnesota Court of Appeals seemingly contradicted the above gerrymandering prohibition by holding that where the release states that the consideration paid was for “general damages and future medical expenses only and does not duplicate any no-fault benefits or medical payments to date”, there is no reimbursement allowed.
The best PIP reimbursement argument is that there is simply no legal authority eliminating their right of reimbursement under § 431:10C-307, notwithstanding the CLD Statute. All trial lawyers can do is argue that it is “unfair” that their recovery has been reduced by the amount of PIP benefits paid, so they shouldn’t have to further reduce their recovery by reimbursing the PIP carrier the benefits it has paid. However, even that argument has holes if you do the math. Assuming $10,000 in PIP benefits are paid and a $50,000 tort recovery, which includes medical expenses as damages, the $50,000 tort recovery is reduced by $10,000 so the claimant recovers only $40,000, in addition to the $10,000 he benefitted from as a result of the PIP benefits paid by the carrier. To allow the claimant to avoid repayment of the PIP benefits means he recovered medical expenses which he never had to pay. Equitably, the carrier which paid the PIP benefits should be allowed reimbursement of the $10,000 they paid, which would make everybody whole.
PIP subrogation in Hawaii is dormant partly because of the confusion underlying the interplay between these statutes and partly because even if trial lawyers lose in their CLD Statute, the most PIP carriers are likely to recover is 50% of $10,000 ($5,000), which is likely to be reduced by 1/3 for attorney’s fees. So, the cost-benefit analysis involves determining whether or not the cost of defeating the CLD Statute outweighs the arguable maximum reimbursement of $3,333.
Trial lawyers in Hawaii will tell you that there is an “uneasy peace” between liability carriers and PIP carriers with regard to PIP subrogation. The uncertainty and potential cost-ineffectiveness of PIP subrogation, combined with the fact that doctors prefer the reimbursement rates from health plans over those of PIP or Medicare, means that Hawaii sees relatively little PIP subrogation. This means that the likelihood of seeing a resolution to the ambiguity and uncertainty in this area any time soon is relatively small. Everybody is used to the fact that if you are a Bodily Injury carrier, you simply get a $10,000 credit on every claim. Not much more thought is given to the forgotten reimbursement rights of PIP carriers. If more PIP carriers pushed the issue, it might bring the matter to a head. Section 663-10 of the Hawaii Statutes requires the court to determine the validity of any claim of a lien against a judgment or settlement, and carriers should insist on intervening to protect that right.
In light of § 431:10C–307, it has long been generally assumed that traditional PIP subrogation in Hawaii was eliminated. On February 25, 2013, however, the Minnesota Court of Appeals decision interpreting Hawaii law held that the plain language of § 431:10C–307 does not eliminate a no-fault insurer’s common law (equitable) subrogation rights. The statute merely provides that when a settlement duplicates PIP benefits the PIP carrier shall be reimbursed 50% of the PIP benefits. Therefore, the Court held that although the statute expressly creates a right to reimbursement when a settlement is duplicative of no-fault benefits paid, it is silent about no-fault subrogation rights when a settlement does not duplicate no-fault benefits paid. The Court also announced that the statute neither states that it creates the exclusive basis under which a no-fault claimant may seek reimbursement against a tortfeasor for no-fault benefits paid nor mentions the word subrogation. The Minnesota Court of Appeals in American Family Mutual Ins. Co. v. American Automobile Ass’n d/b/a Auto Club Ins. Ass’n therefore concluded that the plain language of § 431:10C–307 does not eliminate a no-fault insurer’s subrogation rights against a tortfeasor or a tortfeasor’s insurer at common law.
Matthiesen, Wickert & Lehrer, S.C. is actively arguing in numerous cases in favor of PIP reimbursement rights in Hawaii. It is a situation where a little pressure and the right set of facts could turn the tide. It remains to be seen if Hawaiian courts will give comity to the Minnesota ruling no matter how much sense the decision makes. If you have Med Pay or PIP subrogation needs anywhere within North America, please contact Gary Wickert at [email protected].