Medical Payments Coverage – New Appleman on Insurance Law Library Edition, Chapter 64

Medical Payments Coverage – New Appleman on Insurance Law Library Edition, Chapter 64

By Donald M. Carley, Associate General Counsel, State Farm Mutual Automobile Insurance Company

Chapter 64 provides an overview of one of the most overlooked coverages in the personal automobile insurance contract - the medical payments coverage.  The coverage was first introduced in the late 1930s and early 1940s to provide limited, no-fault medical payment benefits to those injured in an automobile-related accident.  Although the voluntary coverage is typically purchased with modest limits, often in the range of $1,000 to $5,000, limits of $100,000 or more are offered by some insurance companies.

As is necessary in a work of this nature, the focus of this chapter is generally on standard policy terms and their interpretation by courts in various jurisdictions.  Because medical payments coverage is limited, it is unsurprising that there is a paucity of decisions in any given jurisdiction squarely addressing the application of a policy provision regarding this coverage.  Invariably, cases directly addressing medical payments coverage issues arise in the context of other, related coverage issues.

The importance of, and volume of litigation arising out of, medical payments coverage appears to be increasing.  This is due, in part, to the financial and economic crisis in the United States during the late-2000s, which yielded sharply higher unemployment rates and a reduction or elimination of medical coverage for many unemployed workers.  This is one explanation for the apparent increase in attention and reliance on medical payments coverage as a means to fund medical expenses as a result of an automobile-related accident.  Moreover, the advent of Health Management Organizations ("HMOs') and Preferred Provider Organizations ("PPOs"), which frequently narrow consumer choice to network providers, higher deductible medical insurance plans, and higher co-insurance costs, also partially explain the greater reliance on medical payments coverage in the personal automobile policy to insure medical expenses.  The coverage can facilitate customer choice and provide funds to pay for medical expenses within an insurance deductible or applicable co-insurance provision.

Chapter 64 is organized consistent with the terms of the insurance policy contract - starting with the insuring agreement, key defined terms, exclusions, and other policy terms and conditions.  As a threshold issue, Section 64.01 provides a historical foundation for the introduction of medical payments coverage, and discusses the purpose and necessity for it within the context of the personal automobile policy.  The section also highlights the interplay between medical payments coverage, sometimes referred to as "med pay" coverage, typically a voluntary coverage, and personal injury protection ("PIP") coverage, typically a statutorily mandated no-fault benefit scheme developed in a number of states.

Section 64.02 contains a discussion of the medical payments coverage insuring agreement and focuses on the central policy terms.  An understanding of the scope of the coverage grant is necessary to appropriately evaluate when, and if, coverage is available.  The connection between automobile insurance and other forms of first and third-party protection are on full display, as the provisions of the policy draw thoughtful lines to appropriately limit and define the scope of available coverage for bodily injury caused by or otherwise involving an automobile.

The importance of identifying and understanding "who is an insured" and others who come within the scope of coverage is discussed along with key policy definitions in this section.  Other concepts central to the scope of medical payments coverage, including what constitutes "reasonable and necessary" medical and funeral expenses, are also discussed.  A touchstone in any analysis of the application of medical payments coverage is the nexus between the automobile accident and the bodily injury.  Thus, issues regarding causation of bodily injury are considered in Section 64.02[6].  Section 64.02[7] concludes with a discussion of the contractual time limitation.  Many current policy forms contain a three-year contractual limitation period for the submission of a medical bill.

Section 64.03 contains a detailed discussion of the standard medical payments coverage exclusions.  They cover a wide array of important issues, and help define and delineate the overall scope of coverage by excluding claims in a number of defined circumstances.  A review of these exclusions not only outlines what is excluded, but also helps clarify and expound on the overall nature and kind of coverage afforded.  Thus, a review of the policy exclusions, in connection with the insuring agreement and all other policy terms and provisions, is both necessary and instructive.

Section 64.03[1] examines the exclusion for vehicles with less than four wheels, which precludes coverage for injuries that occur in connection with motorized vehicles ranging from motorcycles to boats.  Many medical payments exclusions are designed to achieve market segmentation.  Using a vehicle for hire or for livery is precluded in order to ensure the personal automobile policy is not unintentionally converted into a business policy, which is discussed in Section 64.03[2].  In order to limit the overlap between homeowners and automobile insurance, and the benefits available under these two ubiquitous forms of coverage, medical payments coverage is expressly excluded when an automobile is used as a residence or premises as discussed in Section 64.03[3].

Injuries while at work involving an automobile are also generally excluded.  Workers' compensation is the appropriate and primary form of insurance for workplace accidents as discussed in Section 64.03[4].  Similarly, the use of a vehicle in a business is excluded, as discussed in Section 64.03[8].   In order to ensure coverage is secured, the standard policy excludes coverage if injured when occupying or struck by an uninsured automobile owned by or available for regular use (Section 64.03[5]), and for bodily injury involving an uncovered automobile owned by a family member or available for their regular use (Section 64.03[6]).  As discussed in Section 64.03[5], the last clause, "available for regular use," raises a number of unique coverage questions and frequently requires a highly fact-intensive inquiry.  When an injury is caused while driving a car without permission, there is no coverage.  The question of what constitutes a "permissive user," is subject to a breathless array of unique circumstances and could easily be addressed in a lengthy chapter in its own right.  In Section 64.03[6], the application of this exclusion is addressed in detail, but not in an exhaustive manner.

A number of exclusions are intended to bar coverage due to the heightened or simply uninsurable nature of the risk, including the risk caused by war or insurrection (Section 64.03[9]), nuclear reaction, radiation, or radioactive contamination (Section 64.03[10]), and racing (Section 64.03[11]).  While there is a dearth of case law on the application of war or insurrection and nuclear exclusions in the context of the personal automobile policy, the relative geopolitical uncertainty and heightened military activity across the globe, coupled with Japan's recent nuclear disaster, underlie the importance of these common exclusions.

Section 64.04 contains a discussion of the limits of liability, including a general discussion of the limits.  Typically, coverage is limited to the amount listed on the declarations page of the policy for medical payments coverage and applies on a "per person" and "per accident" basis.  Also discussed in this section, is the application of the policy's non-duplication of coverage provision.  Because of the potential overlap of medical payments coverage with other available coverages, non-duplication issues frequently create difficult practical and legal issues.  In contrast, because of the nature of the medical payments coverage and the straightforward policy language, the limits of liability provision is rarely a subject of much academic or judicial debate.

Next, in Section 64.05, there is a discussion of the relationship between medical payments coverage and other automobile and non-automobile insurance coverages.  The chapter concludes with a discussion in Section 64.06 of the application of arbitration in the context of medical payments coverage.  Simply put, an arbitration provision is typically not included within the medical payments coverage. Thus, issues regarding the amount of medical payment coverage owed are only infrequently arbitrated - unless the parties mutually agree to or are required by applicable court procedural rules to arbitrate the dispute.

Donald M. Carley is an Associate General Counsel with State Farm Mutual Automobile Insurance Company, and a former partner with Sonnenschein Nath & Rosenthal LLP (now known as SNR Denton), resident in the firm's San Francisco office.  While in private practice, Mr. Carley had a nationwide practice representing the insurance industry in the area of complex commercial insurance litigation, including coverage and bad faith litigation.

The views expressed in this chapter are those of the author.  Nothing contained in this chapter should be misconstrued as representing the position of State Farm Mutual Automobile Insurance Company or any of its affiliates, employees, or agents.

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