When a literal and minor technicality
was litigated, appealed and re-appealed
Technically, the medical center “won.” Practically speaking, every party lost.
By Bruce D. Hicks, CPCU, CLU
The Court Decisions column is a popular part of Rough Notes magazine. One reason for this is that the court room is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mental exercises. This column comes from the industry expert contributors to Policy Forms & Manual Analysis (PF&M). This is a knowledge base consisting of more than 15,000 pages of coverage explanations from Rough Notes Company’s digital solutions. The contributors are going to dig a little deeper into one of those court decisions to identify a coverage problem, provide possible solutions and/or offer broader perspectives.
Often, we’ve featured rather typical insurance disputes that are accompanied with lessons that may be broadly applicable; this is not one of them.
Oddly enough, neither of the parties in the case Long Beach Memorial Medical Center v. Allstate Insurance Company have any dispute over coverage. The underlying loss involved an uninsured motorist who hit and severely injured the policyholder.
The insurer attempted to settle the loss for $300,000. It issued checks to Medicare, the policyholder/attorneys (as co-payees), and a third co-payee check to the policyholder/medical center.
The payment attempt that included the medical center (roughly $116,000) was problematic. The first check issued by the insurer was not cashed and it expired. The insurer issued a second check and it, too, went uncashed.
The medical center, under a state statute called the Hospital Lien Act, refused to cash the checks. It claimed that the insurer, by including the policyholder as a payee, was in violation of the act and that, essentially, it failed to make a valid payment.
The medical center and the insurer played legal badminton (“yes, it was a payment,” “no, it wasn’t a payment”) over the matter. The resolution came only after three levels of courts spent time on the matter.
Technically, the medical center “won.” Practically speaking, every party lost.
Consider what took place. There was no dispute that a loss occurred. No one argued over the amount of payment due. There was no disagreement over whether the medical center was a valid payee. Absolutely everything was triggered by an argument over the necessity of a check being issued to co-payees.
A literal and minor technicality was litigated, appealed and re-appealed. The result was the insurer having to issue, yet again, a payment, for a third time, at the original amount, but with a single payee.
The litigation expenses may have been greater than the payment. Worse, neither the medical center nor the insurer tried to resolve the issue outside of court actions. We neither had to dig deep nor long to discover the inanity and the waste of resources by parties who should have acted quickly and reasonably to close an undisputed loss.
The author
Bruce D. Hicks, CPCU, CLU, is an Indiana-based insurance coverage expert. Active in the CPCU Society, Bruce served as a governor of the organization from 2007 through 2010 and most recently served on its International Interest Group Committee and as Chair of its Publications Committee.
