Governor Signs Colorado Make Whole Bill, Protects Consumers

In May 2010, Colorado Governor Bill Ritter signed House Bill 10-1168, also known as the Make Whole bill, into law. The new bill takes a great stride in protecting consumers from the questionable practices of Insurance companies.

Bachus & Schanker, LLC is proud to have played a part in this landmark bill on behalf of Colorado’s citizens.

Rep. Claire Levy (D-Boulder) and Sen. Pat Steadman (D-Denver) sponsored the bill. It was also made possible by help from the Colorado Trial Lawyers Association and Bachus & Schanker, LLC. Bachus & Schanker, LLC is proud to have played a part in this landmark bill on behalf of Colorado’s citizens.

The bill goes into effect on August 11, 2010 and protects accident victims from having to reimburse health insurance companies for medical costs before being fully compensated. The law applies only to victims who were not at fault and who were injured by the act or negligence of a third party.

The make whole doctrine requires that the injured party is fully compensated or “made whole” before the insurance company may seek subrogation or reimbursement. This comes as a long awaited change for Colorado. Thirty-six other states have already implemented the make whole doctrine in some form.

What is subrogation and how do insurance companies use it?

Subrogation is a loophole allowing insurance companies in Colorado to seek repayment for medical costs before the injury victim is compensated for all damages.

When an individual is involved in an accident with serious injuries, rarely are the initial medical bills the only costs. It is likely the victim will have incurred lost wages and possibly an ability to perform their work. They may also have future medical costs and legal fees to pay for.

By leveraging subrogation, insurance companies can force accident victims to repay the company for medical costs before the victim has received all necessary compensation. This could leave an individual responsible for a considerable amount of their additional expenses. The new bill simply reverses the order of payment. Now, only when the accident victim is fully compensated for all damages can the insurance company pursue subrogation.

Why was the Make Whole bill change necessary?

Previously and until August 11 2010, insurance companies were permitted to seek subrogation or reimbursement for medical costs before an accident victim had been fully compensated for all expenses, including those outside the initial medical bills.

Essentially, damages beyond the initial medical costs were not being accounted for. An accident victim could be forced to repay the insurance company before having been compensated for loss of income, future loss of income, future medical expenses and legal fees.

Example: Jane was crossing an intersection in her vehicle, while John ran a red light and hit Jane’s car. Jane suffered $30,000 in medical bills, which her health insurance company paid for upfront. Because of her injuries, Jane was forced to miss work and lost $10,000 in wages. Jane will also be forced to work reduced hours because of her injuries, costing an additional $40,000 in future income. Her total losses now add up to $80,000.

John on the other hand carries $50,000 in liability insurance on his vehicle. John’s insurance company pays Jane the $50,000. Coupled with the initial $30,000 coverage from her medical insurance, Jane would now have enough to cover the $80,000 in total expenses.

Before the new bill takes effect however, Jane’s health insurance company was allowed to seek reimbursement. They force Jane to repay $30,000 from the amount she received from John’s insurance company to cover her initial medical costs. This leaves Jane responsible for the remaining $30,000 in damages.

How will the Make Whole Bill change Colorado insurance practices?

After August 11, 2010, Colorado insurance providers will not be able to seek reimbursement for medical costs until the accident victim has been fully compensated. This means that all costs, even those outside of medical expenses will be taken into consideration. This applies to accident victims who were not at fault and who were injured by a negligent third party.

In cases that involve serious injuries, the costs often extend far beyond the initial medical bills. It is not uncommon for an accident victim to lose work time or working ability. They may also suffer from chronic injuries, which will result in future medical needs.

Under the new law, an insurance company may not pursue reimbursement or subrogation until the victim has been compensated for all of these costs. Only after the victim is “made whole” can the insurance company be repaid.

Example: An apartment building had stairs that were in disrepair. Reports of the poor condition had been filed in writing to the owner, yet building management had neglected to make the necessary repairs.

Robert was arriving home from work when the stairs broke. In the fall, Robert sustained serious injuries including broken bones, totaling $25,000 in medical bills. His health insurance covered these upfront costs.

Robert was forced to stay home from work for several weeks, costing him $5,000 in lost wages. Additionally, Robert’s injuries will affect him for several years, eventually costing another $20,000 in medical expenses.

The building owner’s liability insurance made a payment to Robert of $25,000. Along with the $25,000 from his health insurance, this was just enough to cover Robert’s lost wages and future medical expenses. Robert is “made whole” from his losses. Because it was only enough to cover all damages, there is nothing from which his health insurance company can seek repayment.

Instead of an insurance provider being able to pursue repayment before the victim receives full compensation, the victim must first be covered for all additional expenses. The new bill protects Colorado’s citizens, allowing them to receive full compensation.

When is an insurance provider allowed to seek repayment?

After August 11, 2010, an insurance provider will be able to pursue subrogation when an accident victim has been compensated for all losses. Once compensated, the individual may then have to reimburse the insurance company with any unused payments they have received.

Example: Mary was driving home from work when a commercial truck that had turned the wrong way on a one-way street struck her. In the trucking accident, Mary’s car was hit head-on and she suffered serious injuries. Mary’s’ medical bills reached $50,000 and were paid by her health insurance provider.

Mary was forced to work part-time for nearly a year, costing her $25,000 in lost wages. The trucking company’s liability insurance paid $50,000 to Mary for the damages. This gave Mary more than enough to cover her lost wages.

Because Mary was fully compensated for her losses, her health insurance company could now seek repayment. Mary received $25,000 above what she needed from the trucking company’s insurance provider. She would now be able to repay that amount for her medical expenses.

Does the new bill apply to uninsured or underinsured motorist coverage?

Yes. If an uninsured driver injures an individual in an Auto Accident, the coverage received from the individual’s Uninsured Motorist (UM) policy will be safe from subrogation until all damages have been compensated for.

Example: Jen ran through a stop sign and crashed into Louis’ car, giving Louis a severe knee injury. Louis’ medical bills added up to $10,000, which his health insurance paid for. Louis will develop arthritis in his knee, costing him another $50,000 over time.

Jen was uninsured, but fortunately Louis carried $25,000 in UM coverage on each of his two cars. Since UM coverage is stackable, meaning it can be collected from both vehicle policies, Louis will receive the $50,000 needed to cover his future medical costs.

Additionally, after August 11, 2010, Louis’ insurance provider will not be able to ask for reimbursement. Since the $50,000 will barely cover future medical bills, Louis will not need to repay anything to his insurance company for the initial medical costs. Any payment received from a UM policy will be free from subrogation until all damages have been compensated for.

h2>If pursuing a claim against the party responsible for my injury, will my insurance company be required to share legal costs if they seek subrogation?

Yes. There are times when an individual is forced to take legal action against the party at fault in the auto accident. If the injured individual receives payment from that claim, it essentially creates a common fund from which the injured person and the insurance company can be compensated.

If the accident victim has been fully compensated, the insurance company may then pursue subrogation. Since the insurance company is benefiting from the common fund created by the injured party’s legal claim, they will be required to cover a proportionate amount of the legal costs.

Example: Carl was waiting at a stoplight when suddenly his vehicle was rear-ended by Susan. Carl suffered severe neck injuries in the accident, costing $5,000 in medical bills. His health insurance paid for these medical costs upfront.

A year later, due to lost wages and ongoing medical costs totaling another $5,000, Carl was forced to file a claim against Susan. Carl was awarded $9,000 but legal fees added up to $3,000, leaving Carl with $6,000.

Before the insurance company could pursue any subrogation from this common fund that Carl’s claim created, Carl must first be made whole by retaining $5,000 for his damages. Then, if the insurance company wishes to subrogate the remaining amount, they must pay a proportionate amount of the legal fees.

Do I Need To Have My Insurance Policy Re-Written?

No. You do not need to have your insurance policy re-written. However, to void the insurance company’s right to subrogation, your insurance company must be notified of any compensation you receive to cover additional damages.

While you are now entitled to be made whole, your “make whole” rights will not be automatically enforced. If you receive compensation for any damages, you must notify your insurance company within 30 days. If this notice is not given, the insurance company will still be able to pursue subrogation.

The notice must include the total amount you received, where you received it from, the coverage limits of any applicable insurance policy and the amount of any costs you incurred while obtaining the compensation.

For assistance in preparing this notice, please contact the offices of Bachus & Schanker, LLC. It is important that this notice be filed properly. Otherwise your insurance provider may still be able to subrogate funds you receive before you have been fully compensated for damages.

If I file an insurance claim against the at-fault party, will I be entitled to the full amount?

Yes. If you are forced to file a claim, you will be entitled to the amount of your bills. In the “billed vs. paid” issue, the payee would attempt to pay the victim only for the amount that the insurance company paid the hospital. Because insurance companies receive significant discounts when paying hospitals, this may be far less that the actual amount of the medical bills.

For example, if you have insurance and you accumulated $10,000 in medical bills in an accident, the insurance company will pay those costs up front. However, the insurance company may only pay the hospital for $5,000.

Because of the deal between hospitals and insurance companies, the at-fault party may try to claim that the real value of your medical bills was only $5,000. However, the make whole doctrine allows you to receive the full benefit of your insurance. In the case of this example, that would be the full $10,000.

If I retain compensation to cover all damages, will my insurance company refuse future claims or withhold other benefits?

No. The bill states that insurance companies are forbidden from withholding any other benefits in order to enforce subrogation. Any payment an accident victim receives to be made whole will not be held against them in other claims or insurance benefits.

If I repay my insurance company for medical costs, will that amount be credited toward my lifetime maximum?

Yes. If an accident victim receives full compensation for all damages and the insurance company is able to seek repayment for the initial medical costs, the amount repaid will be credited toward the individual’s lifetime maximum benefit amount.

For example, if the initial medical bills were $50,000 and the insurance company was repaid $40,000, only $10,000 will go against the policyholder’s lifetime maximum amount.

Summary of the new Colorado Make Whole Bill

House Bill 10-1168 will take effect on August 11, 2010. After that date, the law will require that victims receive full compensation for all damages before an insurance company may seek repayment for the initial medical costs. To void the insurance company’s subrogation rights however, you must send notice to your insurance company within 30 days of receiving any compensation.

The law applies to accident victims who where injured by the act or omission of another party. In the case of an auto accident, if the injured driver was at fault the law does not apply.

If injured by another driver in an auto accident, or the negligence of another party in any other type of accident, the injury victim will be entitled to full compensation, including future medical costs, legal fees, lost wages or future loss of income. Only after a victim is fully compensated for all damages may the insurance company request repayment.

Contact Bachus & Schanker, LLC For Help

Bachus & Schanker, LLC is proud to have supported this important step in protecting the rights of Colorado citizens. Founding partner Kyle Bachus participated in the drafting process for the Make Whole Bill and our firm is committed to the ongoing fight for the protection of individuals in our community.

If you or a loved one is injured in an accident, please contact Bachus & Schanker, LLC. Our dedicated team of auto accident attorneys can help you evaluate your case and ensure the protection of your rights.

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