In this section I want to talk about the function of primary insurance. When someone is injured due to someone else’s negligence and the injured person makes a claim, injured claimants rarely understand where the money that they recover must be paid to someone else out of the settlement or a jury verdict. They know that they must pay their attorney and uninsured medical expense. But they invariably do not understand the role of their own insurance.
Take for example, when a person is injured in a car accident because another driver negligently causes the accident. When the injured person makes a claim against the at-fault driver, it generally takes months or longer before the claim is resolved. That is because there is generally no settlement until the person who is injured is has finished their treatment and is fully recovered from their injuries, or it becomes known that they will not recover. During that period, the insurer for the person who caused the injury will not pay one dime to the person who has been injured except when there is a complete settlement of the all the injured person’s claims against the at-fault driver. In those cases where a lawsuit is filed, it probably takes longer before a jury verdict is rendered and the injured person recovers money from the at-fault party and their insurer.
But during the period prior to settlement with the at-fault insurer, the insured person nevertheless incurs medical bills and may lose income because they cannot work. If the person who is injured also has insurance that covers the cost of that treatment and the loss of income, that insurance generally pays for those losses immediately, which the at-fault insurer will generally never agree to do. So, for example, the normal automobile policy covers its own insured’s costs of treatment and loss of wage (within the limits of the coverage.) But the at-fault carrier pays nothing until the claim against its insured is settle entirely.
The primary function of insurance is to provide protection against risk in the future.
Here is what people frequently do not understand. As between the injured party’s own insurance and the liability insurance coverage of the at-fault party, the at-fault party’s insurance provides the coverage that is only ultimately liable to pay the losses. The injury person’s policy only pays pending payment at full settlement with the at-fault party and their insurer. At that time, the injured party’s insurance gets repaid what it has paid. It gets paid out of the proceeds of the settlement by the injured person with the at-fault party and their insurance. The injured person’s insurance has only been providing these benefits pending being repaid in order that the injured party gets the benefit of their own insurance coverage pending a full settlement with the at-fault insurer, Generally, the only time that the injured party’s insurance does not get repaid is if it turns out that the at-fault party is determined to not have been at fault, or that the at-fault party was not insured and lacked the assets to pay the injured party’s losses.
For this reason, the at-fault party’s insurer is called the primarily liable insurance carrier.
The injured person’s carrier is called the secondarily liable insurers. Upon settlement, the secondarily liable insurance gets repaid what they paid out if there are sufficient monies recovered to repay secondarily liable insurers. Examples of insurance carriers that are secondarily liable if there is a primarily liable insurer are auto PIP (personal injury protection), the injured party’s medical plan, Medicare and workers compensation coverage, any one of which may provide coverage for the same loss as what the at-fault party’s. Insurer covers and ultimately ends up paying at a settlement.
The difference is that the injured party’s insurer covers the injured person. The at-fault party’s insurer covers the at-fault party against the injured party’s claim. The at-fault carrier does not insure the injured person except in unusual circumstances. Sometimes injured persons think that the insurance for the at-fault party is insurance for the benefit of the injured person. It is not. The coverage that the at-fault insurer provides normally is only available for the protection of the at-fault party against the claims of the injury person against the at-faulty party.
Confusion over this principle occurs when providers for the injured person bill the at-fault carrier. With rare exception the at-fault carrier is not going to pay the injured person’s treatment expense except upon a full settlement.
Keep in mind that : The main function of primary insurance is to provide protection against the chances of loss. How this plays out is complicated sometimes, and another article in this website will cover some of those complications and what they mean for the person who has been injured.
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