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DEFENDING NO-FAULT (PERSONAL INJURY
PROTECTION) ARBITRATION CLAIMS
by Michael D. Barrett
According to 1998 statistics provided by the American Arbitration Association, about 13% of the filings for no-fault arbitration result in a total denial of further benefits. About 60% of the filings result in an award of less than the amount claimed.1 Yet, the advantage to the insurer in discontinuing benefits is much greater than winning outright 13% of the time and reducing the claim in over half of the remaining cases. Many claimants simply do not pursue arbitration after the insurer's voluntary payment of benefits ends. Thus, even if some insureds do file for arbitration, the ones that do not represent a complete win for the insurer, without the insurer having to defend its decision to stop payment of benefits. While awards favorable to the insurer are increasingly common, this article explores various strategies the insurer can pursue to put its case in the best possible posture for a favorable award.
Coverage
This article assumes the existence of coverage. In the typical case, the insurer pays benefits for a time and then discontinues payment in order to force a determination as to whether further payment is required. The typical inquiry in a no-fault arbitration focuses on the reasonableness of incurred expenses and necessity of further medical care. These are fact questions and arbitrators are the sole judges of the facts. Coverage, on the other hand, involves a legal determination that the courts, not arbitrators, decide. Johnson v. American Family Ins. Co., 426 N.W.2d 419 (Minn. 1988). If the question is whether the claimant's injury is compensable at all under the No-Fault Act, as opposed to the amount or duration of benefits due, then the courts, not an arbitrator, should decide the question before arbitration. A motion to stay arbitration should be filed in the district court (see Minn. Stat. § 572.09). Some cases require an initial fact determination before coverage can be addressed. In such cases, the insurer must be careful not to waive coverage by proceeding to arbitration. The intent not to waive coverage, and the restricted role envisioned for the arbitrator, must be expressly documented in the hearing. A motion to vacate the award should be filed if the arbitrator has ventured beyond the role of fact finder during the hearing (see Minn. Stat. § 572.19).
The Right to Benefits
In evaluating no-fault claims, we start with the proposition that there is a statutory (and contractual) right to benefits. Minnesota Statutes section 65B.46, subdivision 1 (as well as the insurance policy complying with Minnesota law) provides that "if an accident occurs in this state, every person suffering loss from injury arising out of maintenance or use of a motor vehicle . . . has a right to basic economic loss benefits."
In Wolf v. State Farm Ins. Co., 450 N.W.2d 359 (Minn. App. 1990), the court recognized this right to benefits and said the initial burden was not upon the claimant to prove entitlement, but instead upon the insurer to establish that the claimant was not entitled to benefits. Thus, if benefits are denied without any reason or without demonstrable support, the insurer will lose in arbitration will be required to pay all of the benefits due, along with penalty interest (see Minn. Stat. § 65B.54).
Claimant attorneys typically rely upon Wolf to argue the burden of proof in arbitration is on the insurer. But this is not true. The court of appeals in Wolf went on to say that the insurer can usually meet its burden with information obtained during an IME (or other medical and non-medical evidence demonstrating that ongoing benefits are no longer necessary). If the insurer does this, the burden of proof shifts to the claimant to establish entitlement to benefits. Wolf at 362. Thus, the claimant in no-fault arbitration must establish by the greater weight of the evidence her entitlement to benefits. See also, Kelly v. American Family Ins. Co., 1993 WL 369050 (Minn. App. 9/21/93 - unpublished).
In Ruppert v. Milwaukee Mutual Ins. Co., 392 N.W.2d 550, 557 (Minn. App. 1986), the Minnesota Court of Appeals suggested that, in light of the entitlement to benefits, benefits should continue unless an arbitrator finds that the claimant has been cured or that ongoing treatment is required only for pre-existing or non-accident-related conditions. Most claimant attorneys seize upon this language to argue that if the medical treatment provides any relief, however slight or temporary, then payment by the insurer is required. They typically will solicit self-serving testimony from the claimant that the treatment "helps" or makes their daily living or work day "bearable." The challenge insurer's face in these cases is to get the arbitrator to look beyond the subjective comfort or psychological benefit provided by the ongoing care and address the broader question of "when is enough, enough?"
Challenging the Right to Benefits
Some cases involve injury aggravating or superimposed upon pre-existing or non-accident-related conditions. Despite the voluminous medical records and convoluted history that these cases bring with them, they are often the easiest to defend in arbitration. When other potential causes exist, the necessity for ongoing medical care can be blamed on these other causes, particularly when the automobile accident involves minor impact soft-tissue injury. The insurer's strategy in such cases should be to gather all medical records from every treatment provider/examiner of the claimant for the seven years pre-dating the accident. Rule 12(1) of the Minnesota No-Fault Arbitration Rules requires the exchange of medical reports and Rule 12(2) requires the claimant to provide medical authorizations directed to all medical providers consulted by the claimant in the seven years prior to the accident.
On behalf of the insurers we represent, we forward several blank authorizations to the claimant's attorney and require them to have the claimant complete and sign an authorization for each provider he/she has visited. Once we have gathered the records, we look for similar complaints/treatments pre-dating the accident we are defending. We look carefully at the history of prior accidents for the reported severity of the impact compared with the subject accident. We look at the reported severity of prior injuries compared with the injuries from the subject accident. We look for permanency of prior injuries and particularly the duration of treatment leading up to the subject accident. What we hope to find is evidence of ongoing similar treatment continuing right up to the date of the subject accident. When such evidence exists, the argument that the subject accident created merely a temporary aggravation is an easy sell to an arbitrator. This places the claimant in the position of having to claim that the pain from the subject accident is "different" or "not back to the pre-accident level." These cases typically result in an award of less than the amount claimed in arbitration.
The more difficult cases to handle in arbitration involve claimants too young to have experienced age-related aches and pains, or those who have never been injured or received treatment before the subject accident. Causation by the subject accident is nearly always a foregone conclusion in such cases. Even so, there are some strategies that can be employed to minimize the award.
The first of these involves the treatment parameters promulgated by the Minnesota Chiropractic Association (MCA). The MCA breaks traumatically induced neuromuscular conditions (strains/sprains) into "mild, moderate, considerable and severe" categories. They provide treatment frequency/duration guidelines for each category. While these are mere guidelines and treatment necessity obviously can vary from case to case, they do provide a useful measuring stick to compare to the frequency/duration of care being provided by the treating chiropractor in a particular case. When the number of visits to the treating chiropractor has markedly exceeded these guidelines, we have used this as evidence to successfully argue that further treatments are unnecessary "under the Chiropractic Associations' own guidelines."
Another strategy is to use medical literature to support the discontinuance of benefits. In the mid-1990's, the RAND Corporation and the Consortium for Chiropractic Research sponsored an exhaustive review of 1,457 studies and articles by a panel of medical and chiropractic physicians. The panel found no evidence supporting efficacy of chiropractic manipulation beyond the first three months following a traumatic sprain/strain. See Hurwitz, E.L. et al, Manipulation and Mobilization of the Cervical Spine, a Systematic Review of the Literature, Spine, at 1746-1756 (1996). Similar results for the low back are found in Shekelle, P.G., Spinal Manipulation for Low Back Pain, Annals of Internal Medicine, Vol. 117, at 590-598; and Koes, B.W., Spinal Manipulation and Mobilization for Back and Neck Pain: A Blinded Review, British Medical Journal, Vol. 303, at 1298-1303. Significantly, most studies seem to show that a gradually increasing percentage of soft tissue injury cases resolve within one year regardless of the treatment provided!!
Yet another strategy is to consider the claimant's potential for recovery elsewhere, such as a tort claim against the tortfeasor(s) who caused or contributed to the accident. Claimants often try to portray themselves as being at the mercy of the "big, bad insurance company" which, in denying them benefits, has forced them to personally incur huge medical treatment expenses. Although, technically, the no-fault (contract) claim exists independent of, and without regard to, the success or lack of success of a bodily injury case, when the recovery of any amounts denied in a no-fault arbitration are assured in a concurrent or subsequent bodily injury case, the arbitrator is more easily persuaded to take a critical look at the claim being made without resort to the claimant's bid for sympathy or fairness. Further, when health insurance is available to fall back on if the no-fault claim is denied, the insurer can argue that the case presents a question of "which insurer ought to pay" rather than claimant vs. insurer.
Finally, we recommend copying key medical records and other documents that you want the arbitrator to pay close attention to and presenting these separately as exhibits at the hearing. In their effort to avoid being accused of omitting key evidence, claimants typically will bind every conceivable record in a voluminous arbitration book. Arbitrators are loath to review all of this, correctly surmising that much of it is likely irrelevant. Select the best evidence, be concise and provide it with tabs, highlighting key portions you want the arbitrator to read. This provides the best incentive for the arbitrator to issue an award in your favor.
Choosing the Arbitrator
Selection of a good arbitrator is critical. Perhaps the most effective strategy in these cases is to submit a timely strike list from which the arbitrator who will decide the case is chosen. The American Arbitration Association provides a list of four potential arbitrators, and the parties each have approximately two weeks to return that strike list with one name removed and the remaining three ranked in order of preference. With two arbitrators removed by this strike procedure that leaves two remaining from which the arbitrator for the case will be selected by AAA (it is possible, though rare, that the same arbitrator might be removed by both parties leaving three). The selection from the two (or three) remaining purportedly is based upon the ranking given each by the parties. According to AAA, they add the rank (1, 2 or 3) assigned by the parties together and invite the person with the lowest total to serve. In this writer's experience, however, AAA's selection often appears to be based on which potential arbitrator is available, or which one first responds to the invitation to serve, rather than the parties' ranking. Of course, AAA will not discuss or disclose the process used to appoint the arbitrator in a specific case.
Frequent Questions and Answers
Minnesota Statutes section 65B.525 governs no-fault basic economic loss claims and provides that binding arbitration is mandatory so long as the amount of pending claims are $10,000 or less at the time the petition for arbitration is filed. This is jurisdictional. An award in which the amount pending at the time of the petition was greater than $10,000 has no legal effect, and it does not matter if the insurer has formally denied the claims. Hippe v. American Family Ins. Co., 565 N.W.2d 439 (Minn. App. 1997). The insurer can agree voluntarily to arbitrate claims in excess of $10,000, but is not required to do so. A claimant cannot split his pending claims (i.e. medical and wage) into two arbitrations. Charboneau v. American Family Ins. Co., 481 N.W.2d 19 (Minn. 1992). A claimant, however, can waive the excess portion to come within the jurisdictional amount. Brown v. Allstate Ins. Co., 481 N.W.2d 17 (Minn. 1992). In such cases, the claimant must specify clearly, prior to the hearing, which claims are being presented and which are waived. See Rule 6, Minnesota No-Fault Arbitration Rules. Another jurisdictional requirement is that the award be issued within thirty (30) days of the hearing. Rule 30; Barneson v. Western Nat'l Mut. Ins. Co., 486 N.W.2d 176 (Minn. App. 1992). The arbitrator has no jurisdiction to determine if future benefits should be awarded. LaValley v. Nat'l Farmers Ins. Corp., 517 N.W.2d 602 (Minn. App. 1994).
No-fault insurance is meant to pay for "loss" arising from an "accident" involving the "maintenance or use" of a "motor vehicle." All of these terms are defined in the Act (see Minn. Stat. § 65B.43) and the case law. Occasionally cases present where the presence of one or more of these conditions for coverage is in dispute. See Coverage section, supra. For instance, "loss" requires economic detriment, i.e. usually an actual expense incurred. If there is no "loss", then there is no benefit under the Act. Rotation Engineering & Manuf. Co, v. Secura Ins. Co., 497 N.W.2d 292 (Minn. App. 1993). Thus, replacement services were denied in the absence of proof of actual expenses in Nadeau v. Austin Mut. Ins. Co., 350 N.W.2d 368 (Minn. 1984) because there was no proof of "loss." Similarly, when family members provide nursing services without out-of-pocket cost to the injured party, there is no covered loss. Great West Cas. Co. v. Kroning, 511 N.W.2d 32 (Minn. App. 1994). There is an exception for full-time homemakers who claim replacement services when the benefit is based upon the "value" of the service. Rindahl v. Nat'l Farmers Union Ins., 373 N.W.2d 294 (Minn. 1985).
Wage loss is compensable only as long as there is an inability to work due to injuries in the accident. Darby v. American Family Ins. Co., 356 N.W.2d 838 (Minn. App. 1984) denied benefits when the injured party could physically return to work, but could not find a job. In addition, the focus is on loss of income, not loss of work. When an injured person had been working two jobs before the accident, but only one job after the accident at higher pay, there is no "loss" for no-fault to compensate. Erickson v. Great American Ins. Co., 466 N.W.2d 430 (Minn. App. 1991). However, if a disability permits only part time return to work or restrictions result in work at lower pay, the difference in income can be claimed under no-fault. Prax v. State Farm Mut. Auto. Ins. Co., 322 N.W.2d 752 (Minn. 1982). Minnesota Statutes section 65B.44, subdivision 3 requires payment of 85% of the gross loss of income (after any substitute earnings are subtracted), subject to a maximum of $250.00/week. If workers' compensation pays 66 2/3% of lost income, there can be a claim under no-fault for the difference between the amount received from workers' compensation and the 85% required under the Act. If the amount of workers' compensation paid exceeds $250.00/week, there can be no claim for no-fault benefits. Hoben v. City of Minneapolis, 324 N.W.2d 161 (Minn. 1982). Loss of sick time or vacation time accrued can also be compensated as income loss if due to the accident. Hoeschen v. Mut. Service Ins. Co., 359 N.W.2d 677 (Minn. App. 1984).
Minnesota generally requires a no-fault carrier to pay all reasonable and necessary expenses or loss even if a pre-existing condition or subsequent accident also contribute to the claimant's condition. Apportionment between accidents or conditions generally is unavailing. Great West Cas. Co. v. Northland Ins. Co., 548 N.W.2d 279 (Minn. 1996); Scheibel v. Illinois Farmers Ins. Co., 615 N.W.2d 34 (Minn. 2000). However, this often is a fact question for arbitration and medical evidence of contribution from other events or causes can be helpful. We don't discourage IME apportionment, but the real issue comes down to whether the accident for which no-fault benefits are payable is still contributing to the expense or disability or can be said to be resolved and no longer a factor medically.
Termination of benefits based upon lapse of more than twelve consecutive months in treatment is all but a thing of the past in Minnesota. Minnesota Statutes section 65B.55, subdivision 2 permits insurers to put exclusionary language in their policy, but it is not mandatory. It goes without saying, however, that if there is no lapse provision in the policy, then there will be no defense available to the insurer based upon a lapse in treatment. Furthermore, there must be a lapse in both treatment and disability from the accident. If the injured party remains disabled, even partially, a lapse in treatment will not defeat a later claim for benefits. In Thomas v. Western Nat'l Ins. Co., 562 N.W.2d 289 (Minn. 1997), the court upheld an arbitrator's definition of "disability" as "anything affecting the normal physical and mental abilities of a person." Given this broad all-encompassing definition, it is hard to imagine a successful defense on lapse, absent a complete cure and twelve month remission of symptoms from the accident. It may even be an unfair claims practice to argue lapse unless the insurer has given a notice to the claimant at least 60 days prior to the expiration of the lapse period. See Minn. Stat. § 72A.201, subd. 6(11).
Minnesota Statutes section 65B.56, subdivision 1 provides that a claimant must submit to examination by a doctor of the insurer's choice "as often as the insurer may reasonably require." The exam generally must be in the claimant's city of residence, but a failure to schedule within the city of residence does not automatically justify a failure to attend. Ortega v. Farmers Ins. Group., 474 N.W.2d 7 (Minn. App. 1991). If a claimant unreasonably fails to attend an IME, the unreasonable failure to cooperate justifies the insurer's suspension of benefits until the claimant attends the exam. Neal v. State Farm Mut. Auto. Ins. Co., 529 N.W.2d 330 (Minn. 1995). The arbitrator must determine if the examination requested was reasonable and whether the failure to attend was reasonable or unreasonable. If an unreasonable failure to attend a reasonable exam is found, the options available to the arbitrator are several. The arbitrator can deny the benefits claimed for which the IME was requested, award benefits without penalty interest, order the attendance at an IME or fashion any other remedy appropriate under the facts. Weaver v. State Farm Ins. Co., 609 N.W.2d 878 (Minn. 2000).
Cost and Interest Issues
Attorneys representing claimants often view the discontinuance of benefits to be a demonstration of bad faith rather than the good faith exercise of the insurer's duty to pay only legitimate claims. They seek maximum recovery of benefits, of course, together with "penalty" interest. But then they also argue for recovery of all costs and disbursements since "the claimant makes less than a full recovery of what is awarded unless their costs are also awarded." We typically see costs of narrative reports by the treating physician opining permanency (obtained in connection with the bodily injury rather than no-fault case), costs of obtaining medical and employment records (again often an expense incurred in pursuit of bodily injury case), and costs for photocopying or preparation of arbitration books full of irrelevant medical records or self-serving legal analyses. Minnesota does not recognize bad faith claims in first-party insurance disputes. Haagenson v. Nat'l Farmers Union & Cas. Co., 277 N.W.2d 648 (Minn. 1979). Furthermore, litigation costs are intended to be borne by the party who incurs them. Rules 40 and 42 expressly contemplate that the parties to the arbitration will pay their own expenses.
Rule 32 permits the arbitrator to grant any remedy or relief the arbitrator deems just and equitable consistent with the Minnesota No-Fault Act. The arbitrator may (but is not required to) include in the award arbitration fees (filing fees or arbitrator's compensation), witness fees/expenses (but not expert fees - see Kerber v. Allied Group Ins., 516 N.W.2d 568 (Minn. App. 1994)), rescheduling fees, but not attorneys fees (see LaValley, supra). Costs of narrative reports for litigation purposes, not for treatment purposes, are not recoverable under the No-Fault Act. See Krummi v. MSI Ins. Co., 363 N.W.2d 856 (Minn. App. 1985). Although the Rules give the arbitrator discretion to order costs in favor of one party (almost always the claimant) against the other, we always include in our Brief at the hearing argument that each party should bear their own costs of arbitration. Both parties have an equal interest in getting fact disputes resolved in a fair and prompt manner.
Because interest under Minnesota Statutes section 65B.54, subdivision 1 is mandatory and must be included in every award of benefits "overdue" at the time of arbitration (see Rule 32), the question then becomes whether the benefits claimed, or some portion of them, are "overdue." The statute gives the insurer 30 days to pay benefits from the date both the fact and amount of the loss is known to the insurer. The benefits are not "overdue" if the requisite proof of loss is not available to the insurer, and in any case, interest does not begin to accrue until the 30 days has elapsed. In many cases the fact and amount of unpaid bills is known and benefits are not paid based upon recommendations of an independent medical examiner. In such cases, all we can do is assure that interest is properly calculated on any amounts awarded, giving due allowance for the 30 day response period. The penalty interest is not part of the no-fault insurance limits. McGoff v. AMCO Ins. Co., 575 N.W.2d 118 (Minn. App. 1998).
In some cases, however, proof to support the claim comes after the petition for arbitration and often such proofs are presented for the first time at the arbitration hearing. In these cases, interest is not properly awarded, even if the benefits claimed are awarded, since the insurer never had the proof or the requisite 30 days to decide whether to pay the benefits. An example is replacement services. To recover replacement services, there must be 1) proof of medical inability to perform usual and necessary services that the claimant normally would perform if he/she had not been injured; 2) evidence that some third-party (who is not already obliged to perform them and who would not normally perform these services) performed them in the stead of the claimant; and 3) evidence of reasonable (and actual) payment by the claimant for those services performed by the third-party. See, for example, Nadeau v. Austin Mutual Ins. Co., 350 N.W.2d 368 (Minn. 1984). If one or more of these required elements is missing, there should be no award of replacement services loss. But even if the arbitrator awards the loss proven at the hearing, we always try to limit interest awarded on the benefits by pointing out that the requisite proof was established, if at all, at the hearing and the insurer has 30 days from the hearing to pay any benefits due.
The Bottom Line
Although these strategies have proven effective in arbitration of no-fault claims, perhaps the single most important factor determining the outcome in these cases is the demeanor and appearance of the claimant at the hearing. The claimant has to "sell" the claim to the arbitrator. If the claim appears legitimate, reducing the benefits claimed is very difficult, no matter what strategy the insurer employs. Hopefully the strategies suggested here will put you in the best possible position to avoid or limit the benefits claimed in no-fault arbitration.
Footnotes:
1 The average reduced award was 60% of the amounts claimed.BACK
Michael D. Barrett has been practicing liability insurance defense since 1987. His areas of experience include workers' compensation subrogation, personal injury defense and coverage-related issues such as no-fault automobile insurance. Mike received his B.S., cum laude, from theUniversity of Minnesota, where he was a member of the Gamma Sigma Delta Honor Society. He attained his J.D., cum laude, from William Mitchell College of Law. He was admitted to the Minnesota bar and the U.S. District Court for the District of Minnesota in 1987. Mike has served as a speaker at many client seminars. He is a qualified mediator and is listed on the Alternative Dispute Resolution Rule 14 Neutral Roster. He is a member of the Hennepin County Bar Association, the Minnesota State Bar Association and the Minnesota Defense Lawyers Association.
Mike has been married since 1982 and lives in Orono with his wife Dana and their children, Lauren and Matthew. Mike is active in a number of civic organizations such as the Casco Point Association, in which he currently serves as president. In the past he has served as special deputy of the Hennepin County Sheriff's Water Patrol. In his spare time, Mike enjoys woodworking.
direct dial number: (952) 525-6920
e-mail: mdb@cousineaulaw.com