You purchase insurance (or it is provided to you by your employer as part of your compensation package). You, either directly or indirectly, pay the premiums. You are injured, and the insurance policy pays for medical treatment related to your injuries. Most people at this point would typically assume that the insurer has done what they were hired to do and that will be the end of it. On the contrary, oftentimes it isn’t. In California, insurance policies typically have buried within their boilerplate provisions what is known as a “right to reimbursement.” It gives the insurance company a right to seek reimbursement for the expenses they have paid on your behalf from any third party who has caused you injury. “Right to reimbursement” clauses are outlawed in many states, but is permissible in California so long as the insurance contract is clear and precise in its language.
It sounds innocuous enough: why should an insurance company have to bear an expense caused by a negligent third party? In operation, however, it is one of the most nefarious aspects of the California insurance industry. In catastrophic injury cases, it threatens to derail the entire notion of what people expect from insurance companies. It isn’t really the Defendant who is reimbursing the medical provider, it is the insured.
The “right to reimbursement” and the right to proper treatment comes directly from what the injured person would have received the negligent third party that injured them. In essence, the insurance company is reimbursed in whole or in part, and the insured is left with a significantly reduced recovery, or occasionally no recovery at all. For example, in cases involving insurance provided by your employer, the Supreme Court of the United States has ruled that the medical plan is entitled to 100% reimbursement before the insured receives a single dime.
The core question becomes: what was the point of buying insurance? If one’s recovery is reduced or eliminated due to the insurance company’s priority claim, then was the benefit earned by paying the premiums? “Rights to reimbursement” undermine the entire notion of insurance. The idea of purchasing a policy is to ensure that someone else pays for your catastrophic damages. If the insurance company is receiving a significant reimbursement, the poor, injured insured is essentially filing a lawsuit, litigating his claim, and negotiating a settlement only to turn around and give the funds to an insurance company who was paying out benefits for which premiums had already been paid. Such a system shocks the conscience, and it is surprising that significant attention hasn’t been given to this situation by the Federal or California legislatures. Then again, lobbying clout and donation dollars primarily flow from coffers of large insurance companies. Coffers that swell, in part, from recouping from injured insureds funds that should be helping injured citizens get back on their feet.
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