Over the years I have handled many types of civil litigation. My experience has run the gamut, from class action anti-trust and ERISA, to Labor Law, Environmental Law or Civil Rights, just to offer a few examples. I loved the challenge and interest that came with a diverse civil practice. But when I hung out my own shingle I decided to focus my practice on my “first love”, personal injury law. There are a lot of reasons for that, but one frustration has been the attitude of many good lawyers I respect that personal injury law is an “easy” practice. A recent Court of Appeals decision is a reminder that personal injury law is fraught with complexities and should serve as a reminder to even the most capable lawyers that personal injury cases are not something in which one should occasionally dabble. Even seemingly clear cut cases often present tricky choices that pose traps for the unwary. They are not so elementary.
The Court of Appeals, in Russell v. Haji-Ali, recently held that settling an underinsured motorist claim prior to resolution of an underlying liability claim, will result in a “collateral source” reduction to the liability verdict in the amount of the underinsured coverage payment. Oops. Had the liability claim been resolved first, this would not have occurred. By settling with the underinsured motorist insurer first, the plaintiff had created an offset to liability verdict that would eventually reduce the potential amount to be collected from the liability insurer.
Now, if you are not an injury lawyer, the preceding sentences may be baffling for its unfamiliar jargon, so let me unpack it. First, a bit of background is needed to better understand what the Court of Appeals was doing.
Minnesota law requires every driver to carry a minimum amount of auto insurance. The coverage must not only include liability coverage, but also protection for the policy holder against being in an accident with someone who was at fault but who does not have the required liability coverage (this is known as “uninsured motorist coverage”). Similarly, the required policy also includes protection for the policyholder when someone else caused the harm, but their amount of liability coverage is too small to pay for your damages from the accident (called “underinsured motorist coverage”). It is this latter type of coverage that the Russell case was dealing with. When you are injured by the fault of another, you can first collect against the responsible party for their liability, and when their limit is inadequate, you may be able to recover additional money from your own insurer in the form of underinsured coverage. Sometimes it is evident to the underinsured carrier that the liability coverage is likely inadequate, and so that carrier is willing to resolve the “underinsured” claim without requiring you to actually first resolve the underlying liability claim. That happened in Russell.
The case dealt with the interplay between the liability and underinsured claim, and how it is affected by the “collateral source” law. Minnesota law requires reduction of any liability verdict to take into account certain other benefits that may have paid for some of the loss up until the time of verdict. These are so-called “collateral sources”. The legislature came up with this idea, presumably to reduce liability insurance costs, rather than to follow the common law approach to collateral sources. Under the common law, the courts refused to reduce legal liability merely because the injured person was able to get some insurance benefits from other sources. The courts reasoned that it was better to allow the injured party to “double dip” on some benefits (usually because they had the foresight to procure them for themselves), than it was to give the negligent party a “windfall” in the form of a break on their liability for the damage they caused.
Under the Minnesota Statute, the only way that other payments for a loss may be considered to be a collateral source that will reduce a liability verdict, is if the payments have been made and received prior to the time of verdict. If the other benefits are merely potential benefits to be collected in the future, then they do not become offsets to the verdict. This is where the timing and sequence of pursuing a claim becomes critical.
In Russell, the plaintiff could not reach agreement with the liability carrier, but the underinsured carrier was more amenable to settlement. The plaintiff took the underinsured money, and then tried the liability case. Because the underinsured money was paid, the defendant sought to offset the underinsured payment as a “collateral source” and reduce the liability exposure. The Court of Appeals agreed with the defendant that this was how the collateral source statute would work. Thus, the mere timing of the plaintiff’s settlements gave the defendant an opportunity to reduce its liability exposure. Fortunately, the disadvantageous timing proved to be of little consequence in this particular case, because the settlement with the underinsured carrier exceeded the underinsured liability in light of the size of the liability verdict. But the inconsequential nature of the timing of settlements, though fortuitous for the parties, does not undermine the importance of the lesson. If the liability verdict had been larger, then the prior settlement could have proved to be a costly mistake, leaving the plaintiff with a smaller overall recovery. All merely due to the sequence of the settlements.
Lawyers who limit their practice to personal injury law usually know these nuances of law and procedure, because they spend so much time thinking about these issues every single day and encounter these and related issues repeatedly and in many different settings. A lawyer not so focused on personal injury law, might understandably be tempted to simply collect all benefits possible, as quickly as possible. After all, prompt payment is usually the best thing for one’s client. The example provided by this case is just one of many possible examples of what can go wrong in handling a “simple” personal injury case.
The solution for this problem is elementary: refer the case to, or associate with, an experienced injury lawyer. Such lawyers are also experienced with working with other lawyers under ethical fee sharing arrangements. This can mean a “win-win” for both lawyers and client.
By Michael W. Unger.
Mr. Unger, of Unger Law Office in Minneapolis, is a certified civil trial specialist who represents plaintiffs in personal injury, wrongful death and medical malpractice cases.