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  • Med-Pay Subrogation Clause Contravenes Public Policy

  • Med-Pay Subrogation Clause Contravenes Public Policy

    Maxwell v. Allstate Ins. Cos., 102 Nev. 502, 507 (Nev. 1986):

    In the context of automobile insurance, [the Nevada Suprme Court has] consistently upheld the fundamental principle that an insured is entitled to receive the insurance benefits for which he has paid a premium. Therefore, we conclude that it violates public policy to allow an insurer to collect a premium for certain coverage and then allow the insurer to subrogate its interest and deny the insured his benefits. Precluding the subrogation of the insurer does not result in a double recovery for the insured because the insured is merely receiving the benefits for which he has already paid. Allowing subrogation deprives the insured of the coverage for which he had paid and results in a windfall recovery for the insurer . . . the only justification for allowing subrogation for medical payments would be the lowering of premium rates as a result of such recoupment which is generally not the case . . .

    Other public policy rationales preclude an insurer's subrogation of medical payments. The injured person must bear the total costs of the suit including attorney fees. Yet under a subrogation clause the insurer collects 100 percent of the payments made with no corresponding obligation for expenses.

    Further, the injured person may be unable to fully recover his actual damages. The injured person often must compromise his claim, either because of liability problems or because of limited coverage carried by the tortfeasor. The injured person's medical expense insurance coverage may not provide full indemnity. The injured person suffers "out-of-pocket" losses, such as loss of income or earning power and the costs of asserting the claim and non-economic losses such as physical pain and mental anguish which are often not monetarily indemnifiable. Id. Yet under a subrogation clause the plaintiff's insurer is assured full reimbursement for its medical expense payments regardless of whether the injured person's tort recovery fully covers his actual damages. Thus, if an insurer were permitted to assert a subrogation right the injured person may recover neither his actual damages nor the benefit of the premiums he has paid.

    Finally, the tortfeasor's carrier may consider that as the injured person has already been paid medical expenses his offer can be reduced proportionate to the payment that has already been made. If subrogation were permitted, the injured person may recover nothing for medical expenses.

    Accordingly, we hold that an insurer's medical payments subrogation clause in an automobile insurance policy contravenes public policy and is void.

    (footnotes and citations omitted).

    *** Any law, statute, regulation or other precedent is subject to change at any time ***

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