Oregon Senate Bill 421’s Effect On PIP And Health Insurance Subrogation Sounds Worse Than It Is

Oregon Insurance SubrogationOn March 23, 2015, Oregon Governor Kate Brown signed into law Senate Bill 421 which made PIP and UM/UIM subrogation much more intimidating, but perhaps only slightly more difficult. The new bill amended several Oregon statutes, doubled the PIP medical benefit period from one year to two years, and changed Oregon UM policies from a “difference in limits” form of UM coverage to an “excess” form of coverage. In addition, the bill makes a blustery change to PIP subrogation in Oregon, doubled down on the anti-subrogation Made Whole Doctrine which replaced the “Make-Half” Rule that had been in place for decades and was eliminated in 2016. The ink was not even dry on the 2016 anti-subrogation legislation when Governor Brown struck again. The new bill amends three important Oregon statutes which authorize PIP subrogation, including O.R.S. §§ 742.536 (PIP lien), 742.538 (direct PIP subrogation), and 742.544 (Oregon’s former “Make-Half” Statute). When the dust settles, however, Senate Bill 421’s bark might be worse than its bite.

Until 2016, Oregon law limited reimbursement of PIP benefits so that it was permitted only to the extent that the total amount of benefits paid exceeds the economic damages as defined in O.R.S. § 31.710. This was different and less onerous than the full-blown “Made Whole Doctrine” and meant that an auto PIP carrier could be reimbursed for PIP benefits paid only if the third-party recovery exceeded “economic” damages. The determination of how much money was available to recover was made by comparing the insured’s economic damages to the amounts the insured recovered from various sources. Thus, if an insured had $25,000 in economic damages, but received $10,000 in PIP benefits and $50,000 from the at-fault party in settlement, the amount available out of which to recover PIP was $35,000 ($60,000 received – $25,000 economic damages). In that situation, the PIP insurer could recover its full $10,000.

Following the 2016 amendments, a new formula allowed a PIP insurer to recover its payments to the extent the insured receives benefits that exceed the insured’s total damages, both economic and non-economic. This now became the equivalent of the full-blown Made Whole Doctrine. Using the above example, if the insured had $25,000 in economic damages, and more than $35,000 in non-economic damages, there would be no PIP recovery because the insured’s total damages either equal or exceeded the amount the insured recovered.

The new Senate Bill 421, signed on June 20, 2019, amends several aspects of PIP subrogation under either O.R.S. § 742.536 (PIP lien) or O.R.S. § 742.538 (direct PIP subrogation). 2019 Oregon Laws Ch. 460 (S.B. 421). It amends both of these statutes along with O.R.S. § 742.544 (Oregon’s “Make-Half” or “Make Whole” Statute). The bill also codifies the Common Fund Doctrine (at least with regard to the PIP lien under O.R.S. § 742.536) for the first time, by declaring that a PIP carrier’s lien cannot be for more than the amount of benefits the insurer furnished, against an injured person’s recovery in an “action for damages”, less a proportionate amount of not more than 100% of the expenses, costs, and attorney’s fees the insured incurred in connection with the personal injury recovery. The proportionate amount must be calculated as the ratio between the amount of the lien before a reduction under this paragraph and the amount of the recovery.

After the amendment, O.R.S. § 742.544 now provides:

742.544. Reimbursement for payment of personal injury protection benefits.

(1)(a) As used in this subsection, “total amount of the recovery” means the amount that a person injured in a motor vehicle accident recovers from:

(A) Underinsured motorist benefits described in ORS 742.502 (2);

(B) Liability insurance coverage the injured person receives from other parties involved in the motor vehicle accident;

(C) Personal injury protection benefits or health insurance benefits; and

(D) Any other payment by or on behalf of the party that caused the motor vehicle accident.

(b) An insurer may not receive a reimbursement or subrogation for personal injury protection benefits or health benefits the insurer provided to a person injured in a motor vehicle accident from any recovery the injured person obtains in an action for damages except to the extent that:

(A) The injured person first receives full compensation for the injured person’s injuries; and

(B) The reimbursement or subrogation is paid only from the total amount of the recovery in excess of the amount that fully compensates for the injured person’s injuries.

(2) For purposes of this section, the following rebuttable presumptions apply:

(a) The amount of any judgment that an injured person obtains is the amount necessary to fully compensate for the injured person’s injuries.

(b) An injured person has received full compensation for the injured person’s injuries if the amount of the recovery is less than the coverage available to the injured person from the sum of benefits paid under another person’s motor vehicle liability policy, under an underinsured motorist policy described in ORS 742.502 (2), as personal injury protection payments and from any other source of payment from or on behalf of the party whose fault caused the injuries.

(c) An injured person has not received full compensation for the injured person’s injuries if the injured person recovers an amount that is equal to the coverage available to the injured person from the sum of benefits paid under another person’s motor vehicle liability policy, under an underinsured motorist policy described in ORS 742.502 (2), as personal injury protection payments and from any other source of payment from or on behalf of the party whose fault caused the injuries.

(3) An insurer may not deny or refuse to provide benefits that are otherwise available to an injured person because of the potential the injured person has to make a claim or bring an action against another person or enter into a settlement with another person.

(4) A person with whom an injured person enters into a settlement or from whom the injured person obtains a judgment in connection with a claim or action may not name an insurer that seeks a reimbursement or subrogation under ORS 742.536 or 742.538 as a payee on a check, draft or other form of payment in satisfaction of the claim or judgment.

(5) An insurer may not delay, withhold or reduce benefits to an injured person because of an act or omission for which a third party is or may be liable or as a means of enforcing or attempting to enforce a claim for reimbursement or subrogation.

(6) An insurer that receives a reimbursement for benefits the insurer provided to an injured person shall apply the amount of the reimbursement as a credit against any lifetime maximum benefit set forth for the injured person in the policy, benefit plan or contract under which the insurer paid the benefits.

(7) A provision in a policy, benefit plan or contract that permits reimbursement or subrogation other than as provided in this section is void and unenforceable.

(8) This section does not:

(a) Prohibit insurers from coordinating benefits;

(b) Limit an insurer’s right to seek reimbursement or subrogation to recover, without reduction, amounts the insurer paid for property damage;

(c) Limit an insurer that provided coverage against underinsured motorists from pursuing a claim against a party at fault; or

(d) Require a person to repay more than the amount of personal injury protection benefits that the person actually received.

The phrase “total amount of benefits” is defined to include UIM benefits, liability insurance, PIP payments, and any other payments by or on behalf of the party whose fault caused the damages. Prior to the amendment, PIP subrogation involved a slightly different concept than the traditional Made Whole Doctrine. It was known as a “Make Half Rule” because until 2016 (amending O.R.S. § 742.544), only economic damages were taken into consideration, not non-economic damages. A made whole requirement, on the other hand, ensures that the insurance company providing benefits would not be reimbursed unless the injured person was fully compensated for his loss, including economic damages and non-economic damages. Under the old Make-Half Rule, the injured person was assured of recovering only his economic damages before the subrogation or reimbursement right of the PIP carrier comes into play.

The new bill didn’t amend O.R.S. § 742.534 (inter-insurer reimbursement statute), which allows a PIP carrier to seek reimbursement of PIP payments via arbitration directly from the third-party liability carrier when the PIP carrier has asked the liability carrier for reimbursement, has not elected a PIP lien, and has reimbursement language in its policy. The effect of Senate Bill 421 on inter-reinsurer reimbursement is uncertain, but likely extremely limited.

The old Make-Half Rule was specifically enacted by the legislature in 1993 because lawmakers intended that PIP insurers be reimbursed after an insured recovers his/her economic damages, but before that insured recovers his/her non-economic damages. The legislative intent was to help keep PIP coverage affordable. PIP subrogation works to reduce the PIP carrier’s net claim costs, and correspondingly, their resulting rate needs. The result has been reduced auto insurance premiums. That process will not begin to reverse itself.

For years, trial lawyers have been trying to amend the PIP subrogation statutes in order to apply the full-blown Made Whole Doctrine. On March 23, 2015, they succeeded. They succeeded again on July 20, 2019, with Senate Bill 421. The new law aggressively applies the Made Whole Doctrine to PIP subrogation, and allows PIP reimbursement only when the insured is (1) fully compensated for his injuries, and (2) the reimbursement is paid from the “total amount of the recovery” in excess of the amount necessary to fully compensate the insured. The phrase “total amount of the recovery” includes:

  1. UIM benefits;
  2. Liability insurance payments;
  3. PIP and/or health insurance benefits received; and
  4. Any other payment by or on behalf of the tortfeasor.

The statute also creates rebuttable presumptions that (1) the amount of any judgment is the amount necessary to make the insured whole; (2) the insured is made whole if the settlement is for less than the liability limits; and (3) the insured is not made whole if the insured recovers the amount of liability limits, UIM limits, or PIP limits.

Senate Bill 421 also introduces some other novel issues that affect PIP subrogation. The tortfeasor/liability carrier may not include the PIP carrier’s name on a settlement check. The amount of any reimbursement is applied as a credit against any lifetime maximum benefits in the plan, policy, or contract owed to the insured. In addition, any reimbursement or subrogation clause which provides any rights other than those set forth in O.R.S. § 742.544 is void and unenforceable.

As a practical matter, the only real changes the subrogation practitioner will notice in the wake of Senate Bill 421 will be that PIP carriers will never again be named together with the insured on settlement checks for PI claims inclusive of PIP. Plaintiffs’ attorneys will feel more emboldened about signing off on indemnity/hold harmless releases where settlements were inclusive of PIP, and then can be expected to stubbornly resist reimbursement arguing that their client has not been made whole. Beyond that, you may choose your Shakespearean reference to describe it: either (1) “Full of sound and fury, signifying nothing”, or (2) Much Ado About Nothing.

The amendments to O.R.S. §§ 742.536, 742.538 and 742.544 by Senate Bill 421 apply to insurance policies, contracts, or plans that an insurer issues or renews on or after its operative date, which is September 28, 2019. For help with your auto insurance subrogation needs (UM/UIM, PIP, Med Pay, Collision, etc.) in Oregon or anywhere else within North America, please contact Gary Wickert at [email protected].

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Gary L. Wickert
Partner

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has 35 years of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.