Your own insurance company will usually have a right to reimbursement of the benefits they pay out of your recovery from the at-fault party. But Washington law recognizes significant restrictions on this right of reimbursement.
Even though you are injured as a result of someone else’s fault, the at-fault party’s insurance company will not pay for your ongoing medical bills or wage losses. They will wait to pay those expenses until you are willing to settle all of your claims against their insured. They will then pay those expenses as part of a global settlement in exchange for a full release of all claims against their insured. Or if you are not able to settle with the at-fault party’s insurance company, they will not pay on your claim until you receive a verdict or award legally requiring them to do so.
Until you settle or recover on your claim against the at-fault party, your own auto or healthcare insurance company should pay for your ongoing medical expenses as you are treating after the incident. Subrogation is the right of your own insurance company to assume your legal right to collect reimbursement of the expenses they have paid on your behalf from the at-fault party. The justification for subrogation is that it prevents a double recovery by a claimant, once from their own insurance company and a second time from the at-fault party. To enforce this right of recovery, auto and healthcare policies typically have reimbursement clauses. These clauses provides that if an insured makes a recovery from an at-fault third-party, the insured must then reimburse the insurance company for expenses it paid as a result of that third-party’s fault.
Insurance Company’s Right to Reimbursement Under Washington Law
Washington’s Made Whole Doctrine
A significant restriction on an insurance company’s right to reimbursement under Washington law is what is referred to as the “made whole” doctrine. Under the made whole doctrine, an insurer is only entitled to reimbursement after the insured claimant has recovered all of their damages as a result of the accident. Thiringer v. American Motors Insurance Co., 91 Wn.2d 215, 219 (1978).
While Thiringer was an auto policy case, the made whole doctrine also applies to an insurer’s right to reimbursement under a healthcare insurance policy. Brown v. Snohomish County Physicians Corp., 120 Wn.2d 747 (1993).
An claimant is not fully compensated for their damages from an accident if they are found partially at fault for the accident, because they then do not recover the full amount of their damages. Sherry v. Financial Indem. Co., 160 Wn.2d 611 (2007).
A settlement for less than the insurance policy limits is evidence the claimant was fully compensated by the settlement, putting the burden on the claimant to show they were not fully compensated even though they accepted less than the available insurance. Group Health Cooperative v. Coon, 447 P.3d 139 (2019). See also Truong v. Allstate, 151 Wn.App. 195 (2009) and Peterson v. Safeco, 95 Wn.App. 254 (1999).
Washington’s Common Fund Doctrine
Another restriction on an insurance company’s right to reimbursement under Washington law concerns payment of the insured’s legal fees under what is referred to as the “common fund” doctrine. Under this doctrine, where an insurer is entitled to reimbursement, the insurer is required to pay its share of the attorney fees and costs the insured incurred in making the recovery. Mahler v. Szucs, 135 Wn.2d 398 (1998). The justification for this rule is that the insured incurred legal expenses to obtain a common fund out of which the insurance company will be reimbursed, so it is only fair that the insurance company be required to pay its pro rata share of those legal expenses when it is reimbursed out of that fund.
Mahler involved an insured’s recovery from the third-party responsible for the accident. This rule also applies where the insured’s recovery is both from the at-fault third party and under their own underinsured motorist (UIM) coverage. Winters v. State Farm Mut. Auto. Ins. Co., 144 Wn.2d 869 (2001).
This rule also applies where the at-fault motorist is uninsured and the insured’s recovery is just under their UIM coverage. Hamm v. State Farm, 151 Wn.2d 303 (2004).
This rule also applies when the claimant is a passenger in the at-fault driver’s car, receives personal injury protection (PIP) benefits under the PIP coverage of the driver’s auto policy, and then makes a recovery under the liability coverage of the driver’s auto policy. In this situation, when the driver’s auto insurer seeks to set off the amount of the PIP benefits paid against the liability recovery, it must reduce that set off by its pro rata share of the claimant’s legal expenses. Matsyuk v. State Farm Fire & Cas. Co., 173 Wn.2d 643 (2012).
This rule may also apply when a healthcare insurance company seeks reimbursement under a clause in its policy providing for an apportionment of legal expenses on reimbursement. Harwood v. Group Health Northwest, 93 Wn.App. 569 (1999). However, this rule may not apply if the healthcare insurance is subject to federal law.
Insurance Company’s Right to Reimbursement Under Federal Law
ERISA is a federal law that regulates most employer-provided benefit plans, including healthcare insurance and disability coverage. If a healthcare plan is self-funded by the employer, then only the federal law of ERISA will apply, because employers that self-fund employee benefit plans may not be deemed to be insurance companies for the purposes of state laws regulating insurance companies. If the plan is an insured plan, however, it is subject to state law through its laws regulating insurance companies and contracts. FMC Corp. v. Holliday, 498 U.S. 52 (1990).
If a plan is self-insured, the made-whole doctrine and/or the common fund doctrine still apply, unless the plan clearly repudiates these doctrines. Barnes v. Independent Auto. Dealers of California, 64 F.3d 1389, 1395 (1995)(made whole doctrine). But if the language of a self-funded ERISA plan does expressly repudiate the made whole doctrine and/or the common fund rule, the plan language controls. US Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013). The ERISA plan may provide that the plan is entitled to reimbursement of all of the medical expenses it has paid out of the insured’s third party, regardless of whether the insured has been made whole by the recovery and without sharing in the insured’s legal expenses.