PIP Insurer Pays Meds Plus $200K For Failure To Pre-Authorize Surgery
In a June 2003 decision, the Oregon Court of Appeals found that Farmers Insurance Company had breached its contract to provide personal injury protection (PIP) benefits when it failed to preauthorize the full cost of knee replacement surgery necessitated by automobile accident injuries. The Court affirmed the jury verdict awarding $26,000 in economic damages and $200,000 in noneconomic damages. *fn1
This decision in Anderson v. Farmers Insurance Company (“Anderson”) has several ramifications which bode well for those injured in motor vehicle accidents (“MVA’s”) and the doctors treating their injuries. The Anderson decision is good news in the form of legal leverage for doctors facing PIP denials for major treatments necessitated by auto accident injuries, for which patients have no other insurance coverage and could not otherwise afford.
Court allowed “stacking” of PIP limits for separate policies in the same family
The Court ruled that the driver was entitled to “stack” the total PIP policy limits for all three family auto insurance policies to cover the medical costs for injuries in one MVA.
The injured driver in Anderson (and his wife) had separate identical policies insuring three different vehicles, each with $25,000 in PIP coverage. His PIP-covered damages, including the proposed surgery, exceeded $65,000.
Farmers took the position that the total PIP benefit available was $45,000: the $25,000 on the main policy and only up to the legally required $10,000 minimum PIP benefit on each of the other policies. This was based on Farmers’ concession that its “anti-stacking” clause, which would have limited the driver to only the $25,000 of the main policy, was not enforceable “in full” under Oregon law. Accordingly, Farmers had agreed to pay $13,000, which would have covered only half the cost of the surgery, in addition to the $32,000 already paid for other medical damages.
The upshot of the decision is this: for those insured with insurance companies, like Farmers, that write separate policies for each automobile in a family/household, the total of the PIP limits for both/all of the policies is available to cover all reasonable and necessary medical treatment. Moreover, the insurance company’s improper refusal to pre-authorize or pay for medical treatment could result in hefty “noneconomic” damages, as well as the denied medical expense (“economic damages”).
PIP insurer responsible for “noneconomic” damages
Because the injured driver could not afford (and had no other coverage for) the needed surgery, he cancelled it. The Court affirmed the trial court’s judgment entered on the jury verdict of not only the $26,000 in “economic” damages for refusing to pay the full cost of the knee replacement surgery, but also $200,000 in “noneconomic” damages.
Obviously, the latter figure is what should make insurance adjusters sit up and take notice. An illegal refusal to provide PIP benefits may subject the insurer to legal action not only for the amount denied, but also for substantial additional monetary liability for the consequences of the breach.
“Noneconomic damages” refers to economic liability for injuries flowing as consequences of the action which caused the “economic” damage. The term “noneconomic damages” most commonly refers to damages awarded in a personal injury lawsuit for the “pain and suffering” resulting from the negligently caused injury.
But Farmers was not sued for negligently causing an injury; Farmers was sued for breach of contract. Nevertheless, since Farmers was to provide payment under the contract for medical treatment for a physical injury to the person of the insured, the Court agreed that Farmers should be held responsible for any added “pain and suffering” resulting from the insured’s consequential inability to obtain needed medical treatment.
Benefits of this decision
The benefit to medical providers is clear. One purpose of the law requiring PIP in every auto insurance policy is to get medical bills paid in full and in a timely manner. Efforts to subvert this purpose are not taken lightly.
The primary purpose of the law, of course, is to protect your patient. Here, refusing to preauthorize the surgery forced the patient to abandon plans for needed surgery for lack of funds. Patients now should not be forced into that position, if they have PIP benefits sufficient to cover the medical costs.
Availability of noneconomic damages enables patient to obtain legal representation
A very important aspect of this decision is that it enables patients facing PIP denials to obtain legal representation.
Since PIP benefits cover only specific medical or other “out-of-pocket” economic expenses, up until now there has been no money available for a personal injury lawyer to take PIP dispute on a “contingent” (percentage) basis. The injured person would have ended up losing money. By the same token, the injured person who could not afford surgery also could not afford to hire a lawyer.
The noneconomic damages awarded in this breach of contract suit make it possible for an injured person to obtain legal representation in a PIP dispute.
Again, in Anderson, the economic damages were the cost of the surgery ($26,000). The noneconomic damages assessed against Farmers Insurance Company for breaching its contractual duties amounted to $200,000.
Anderson decision allowed exception to “PIP year”
Another beneficial aspect of the Anderson decision is that it effectively extended the “PIP year.” PIP benefits uniformly provide payment for medical expenses incurred within one year from the date of the accident that caused the injury. Here, Farmers argued that since the patient never had the proposed surgery, the medical expense was not “incurred” within a year and was, therefore, not a covered medical expense. The Court rejected this position.
The reason the patient did not undergo the surgery was because the patient could not afford to pay for the balance of the cost of the surgery in excess of the limited amount Farmers had preauthorized. In light of Farmers’ repudiation of its own obligations under the insurance contract by improperly refusing to preauthorize the full cost of the surgery, Farmers may not now use the patient’s failure to incur the expense as an excuse for its refusal to pay for the surgery.
The availability of “noneconomic” damages may allow damages for emotional distress
In Oregon, a person suing for breach of a fiduciary duty, breach of a contract or for professional malpractice is usually not entitled to damages for emotional distress. The general rule is that one may recover damages for emotional distress only when negligently inflicted in connection with a physical or bodily injury. Emotional distress damages have not been legally allowed where the relationship between the parties was fundamentally economic.
Emotional distress is a “noneconomic” damage. The fact that substantial “noneconomic” damages were approved in the Anderson decision, indicates that damages for emotional distress may be available to the injured party in a PIP dispute, despite the fact that the relationship between the insured and the insurer is “fundamentally economic.”
The rub is in the connection with a physical personal injury. Even though the PIP insurance company was not negligently responsible for the injury itself, its breach prolonged the pain and suffering associated with the knee injury to the extent that it delayed the needed surgery. Therefore, to the extent this pain and suffering gave rise to foreseeable emotional distress, the injured insured should be able to recover for emotional distress along with the other noneconomic damages resulting from the breach of the PIP contract.
Situations not affected by the Anderson decision
The Anderson decision has no bearing on situations where the doctor has taken a lien against future proceeds from a claim against an at-fault driver who is responsible for the patient’s injuries; and, therefore, treatment continues uninterrupted. The benefits of this decision also do not apply if the patient has back-up health insurance to cover the surgery and the co-pays and deductibles are not so large as to prevent the patient from getting needed treatment.
The Anderson decision is good news for MVA injury patients and their doctors, where the injured person has to rely on his/her PIP benefits to obtain needed medical treatment resulting from the MVA injuries.
fn 1 — Black, Chapman, Petersen & Stevens is currently prosecuting a similar claim against Allstate Insurance in Jackson County.