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Nevada Disallows Subrogation of the First-Party Med Pay Carrier Against Its Insured’s Third-Party Recovery

Nevada Med Pay and SubrogationJimmie Brown suffered injuries in an auto accident.  He turned to his insurance company, Allstate, to collect medical payments benefits.  Allstate’s policy included a subrogation provision.  The policy said that Allstate was subrogated to Brown’s right to recover against the tortfeasor to the extent that it had paid him med pay benefits.  Allstate notified the tortfeasor’s insurance, Farmers, of its subrogation interest.

Once he finished treating, Brown then sent his demand to Farmers hoping to recover the amounts not paid under his med pay policy.  Ultimately, the parties reached a settlement.  Brown released tortfeasor Maxwell.  Farmers paid Brown his settlement.  Allstate got nothing.

Allstate filed suit against tortfeasor Maxwell claiming that it was entitled to collect its medical payments directly from him despite the settlement between Brown and Maxell.  The trial court ruled in favor of Allstate’s subrogation rights.

The case went to the Nevada Supreme Court.  In Maxwell vs. Allstate Insurance Co., 102 Nev. 502, 728 P.2d 812 (1986), the parties asked the Court whether Allstate’s subrogation rights were enforceable.  On appeal, Maxwell argued that the medical payments subrogation clause in Allstate’s auto policy was contrary to public policy.  The Nevada Supreme Court agreed.

Following this case, Nevada finds itself in a minority of jurisdictions that will strike down this type of med pay subrogation.  The court’s rationale was that an insured is entitled to receive the insurance benefits for which the insured paid a premium.  Therefore, it would violate public policy to allow an insurer to collect a premium for one type of coverage and then allow the insurer to subrogate its interest, thereby denying the insured his or her benefits.

The court said that this does not result in a double recovery for the insured because the insured is merely receiving a benefit for which he or she has already paid.  To allow subrogation by the first-party insurer against the insured’s third-party recovery would be a windfall to the first-party carrier.  The court said that this was particularly true where the injuries to the first-party insured were so severe that recovery of both policies still would not make the injured party whole.  The court held Allstate’s subrogation clause was void as contrary to public policy.

Please feel free to contact us at Mills & Associates if you have questions about medical payments subrogation, first-party offsets and other questions about Nevada insurance law in general.

About Michael Mills

Mr. Mills practices in the area of civil litigation and appeals, with particular experience in matters involving trucking liability, insurance defense, insurance coverage, premises liability, products liability and defense of personal injury. Mr. Mills is a member of the Trucking Insurance Defense Association, the Defense Research Institute Trucking Committee and the Nevada Motor Transport Association. Mr. Mills is licensed to practice before the Nevada Supreme Court and the Utah Supreme Court. He is also licensed to appear before the United States Supreme Court, the U.S. District Courts for the Districts of Nevada and Utah, as well as the U.S. Court of Appeals for the Ninth Circuit. Mr. Mills has created 3 Blogs for the benefit of the insurance industry. He serves as editor and publisher of the Nevada Insurance Law Blog, the Nevada Coverage and Bad Faith Blog and the Nevada Trucking Law Blog.

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