The legal language surrounding insurance
The legal language surrounding insurance
If you were harmed by someone else’s wrongdoing, you may have been (or soon will be) contacted by an insurance company. This is commonplace, and it is also commonplace for people in this position to quickly become overwhelmed with insurance lingo. The below offers a quick overview of some common concepts related to insurance.
Bad faith claim: This is a claim a person who has insurance (the insured) makes against their insurance company (the insurer) alleging that the insurance company is acting in bad faith by denying coverage. In Texas, most bad faith claims are created by statute, found at the Insurance Code, Chapter 541, as well as the Business and Commerce Code, Chapter 17. This latter authority is the Deceptive Trade Practices Act, specifically made applicable to insurance companies by section 17.50(a)(4).
In a nutshell, an insured pays premiums on their insurance policy and the insurance company has an obligation to fulfill their end of the bargain when it’s time to pay benefits. If the insurance company fails to do so, the insured may be able to sue them for bad faith. In dealing with your insurance company, it is important to know your rights. In Texas, consumers have various rights that the Texas Department of Insurance has detailed here.
Insured: This is the person who is covered by an insurance policy.
Insurer: Also sometimes called a “carrier,” this is simply the insurance company. They have a contract, also known as a “policy,” with the insured to provide some type of coverage.
Medical (hospital) lien: A lien essentially means a right to collect a debt. There are a lot of different types of liens, e.g., tax liens and child support liens. But the most common lien we encounter in injury cases is a medical lien. A common example: you are injured by someone else’s negligence; you go to the hospital and receive medical treatment, but you cannot afford to pay the full bill (perhaps your insurance only covers a portion or perhaps you have no insurance); you then owe the hospital money. However, because you are not at fault, the hospital may choose not to try to collect from you. Instead, the hospital may pursue a lien on any future recovery from the negligent person. In Texas, medical liens are governed by the Property Code, Chapter 55.
Subrogation: This is a technical term representing a very simple concept: paying someone back. Oftentimes, insurance companies have subrogation rights when their insured is injured by someone else’s negligence. A common example: you are injured by someone else’s negligence; you go to the hospital and use your private health insurance to receive $10,000 worth of medical treatment; your health insurance company likely has a subrogation right to seek repayment from the negligent person.
Put another way, they have a right to be paid back by the person at fault for the expenses. If you later receive a settlement for $20,000, you usually cannot just pocket the money without first resolving their subrogation interest. Subrogation can arise in a lot of different contexts, sometimes due to a contract and sometimes due to a statute. However, the most common is with private health insurance, which is governed by the Civil Practice and Remedies Code, Chapter 140.
Third party v. first party: This is confusing. And insurance companies sometimes forget most folks do not work in the insurance industry. Again, however, it is pretty simple when you break it down. In the insurance relationship, the “first party” is the insured. The “second party” is the insurer (the insurance company). The “third party” is someone else. Just as it sounds, a third-party claim is made by the third party. Most commonly, if you are in a car wreck and injured by a negligent driver, you are the third party. The negligent driver is the first party; the negligent driver’s insurance company is the second party; you are the third party. Third-party claims are also sometimes called “liability claims,” meaning you are trying to hold someone liable.
Another type of claim is a first-party claim. Just as it sounds, this is a claim made by the first party (the insured person) pursuant to a policy they’ve purchased. For example, if you file a UIM claim with your insurance company (discussed below), that is a first-party claim. A bad faith claim (discussed above) is a first-party claim as well. Another example would be if you file a claim for damage to your home pursuant to your homeowner’s insurance policy.
UIM Coverage / Underinsured or Uninsured Motorist Coverage: Imagine this scenario: you are in a car wreck caused by another driver’s negligence; you have sustained $50,000 in damages; the other driver only has a minimum liability policy (usually $30,000) or, worse yet, they broke the law and have no insurance at all. This is where UIM coverage comes into play. This is a type of coverage that you elect with your insurance carrier. It provides additional compensation to you if you are injured by someone else’s negligence and that person lacks sufficient coverage to compensate you. In Texas, UIM coverage is generally governed by the Insurance Code, Chapter 1952, Subchapter C. The Texas Department of Insurance also has a good overview available here.
Cronauer Law aggressively advocates for the rights of our clients when dealing with insurance companies. We guide clients through the stressful and difficult task of rebuilding their lives after being unjustly injured. Contact Cronauer Law today for a free consultation.
Want to learn more? See our related links.