Opinion ID: 2595291
Heading Depth: 4
Heading Rank: 1

Heading: The subrogated medical lien

Text: In exchange for signing a settlement releasing Babosky and Colonial from future legal liability, Coughlin received $40,000 in cash from Colonial and Colonial agreed to assume responsibility for GEICO's subrogated $10,000 medical lien. GEICO at some point settled this medical lien with Colonial for $5,000. As a result, Colonial in actuality only paid out $45,000 on Coughlin's claim against Babosky. According to AS 28.20.445(e)(1), uninsured and underinsured motorist coverage cannot be drawn upon until the limits of liability of all bodily injury and property damage liability bonds and policies that apply have been used up by payments, judgments or settlements. In Curran v. Progressive Northwestern Insurance Co., we interpreted this statute to mean that the insured must `exhaust' or `use up' all underlying liability coverage before recovering under [an underinsured motorist] policy. [7] GEICO argues that Curran defeats Coughlin's claim because Coughlin did not exhaust her underlying liability coverage and thus cannot draw on her underinsured motorist policy. But neither fact pattern in Curran, a consolidation of two cases, resembles the present case. In the first fact pattern in Curran, the injured party, who suffered serious injuries in a single-vehicle accident while riding as a passenger with her husband, offered to give both her own insurance company and that of her husband a $50,000 credit against her claims prior to seeking underinsured motorist coverage. [8] But because this proposed credit was not a settlement, judgment, or payment from her husband's insurer, we held that the injured party had not satisfied the requirements of AS 28.20.445(e)(1). [9] In the second fact pattern addressed in Curran, the injured party in a two-vehicle accident was offered a $60,746.03 settlement for a $50,000 insurance policy [10] by the insurance company for the driver of the other car. [11] The injured party refused this settlement offer but eventually settled for $25,000. [12] This amount was far less than the policy limits and consequently precluded the applicability of underinsured motorist coverage. [13] Curran, therefore, is of little assistance in resolving the present issue other than to affirm that policy limits must be exhausted before underinsured motorist coverage can be drawn upon. The present case does not involve Coughlin offering GEICO a credit against her underinsured motorist coverage, whereby she would be able to draw upon her underinsured motorist coverage but reduce her recovery by the amount necessary to exhaust her other claims. We held in Curran that this would defeat the purpose of AS 28.20.445(e)(1) because it would allow a UIM claimant like Curran to bypass the liability insurer altogether and effectively use UIM coverage as primary insurance. [14] Coughlin, however, is making no such attempt here. Coughlin settled her claim for what to her was worth $50,000a $40,000 payment plus payment of the $10,000 medical lien. GEICO claims that the $10,000 medical lien was only worth $5,000 because that is what GEICO settled for with Colonial. However, Coughlin cannot be held responsible for what GEICO ultimately does with the claim. GEICO was under no obligation to settle the claim for $5,000 and could have chosen to pursue the full amount in litigation if necessary. Furthermore, it is unlikely that Coughlin could have settled for more than the combined $40,000 payment and $10,000 medical lien. The facial limit of the Colonial policy was $50,000. The superior court concluded that Coughlin, through her legal counsel, should have known that the medical lien would settle for less than face value because this is common knowledge. But even if true, there is no reason to believe that Colonial would have offered to settle for a $45,000 payment and assumption of responsibility for payment of the $10,000 medical lien, which according to GEICO's reasoning would have resulted in a final payout of $50,000. In effect, the reasoning of the superior court would discourage settlements, a result we wish to avoid, [15] by preventing the assumption of liens as part of a settlement agreement. The ultimate value of the lien cannot be known definitively beforehand, and insurance companies are unlikely to settle claims for potentially more than the face value of the policy limits in the hope that they will be able to settle the assumed lien for less than its stated amount. While it is true that Coughlin could have settled with Colonial for a single payment of $50,000 and then herself paid GEICO the $10,000 reimbursement for the medical payments GEICO made through its policy with her, there is nothing legally requiring Coughlin to do this. The parties reaching the agreement cannot be expected to settle for what would be more than the face value of the policy if the terms of the settlement were fully enforced and collected. The value of the settlement to both Coughlin and Colonial was $50,000 at the time the settlement agreement was reached; that is the measure by which to determine whether Coughlin has exhausted the face value of the Colonial policy.