4th DCA
4th DCA (Melanie Bell)

The issue of exhaustion of policy limits tends to perplex even the savviest of attorneys and adjusters. Fortunately, the Fourth District Court of Appeal recently issued an important opinion that greatly clarifies the issue.

In Northwoods Sports Medicine & Physical Rehabilitation v. State Farm Mutual Insurance, the Fourth District held that even after a medical provider files a lawsuit, an insurer can exhaust policy limits, provided that it does so in good faith.

In reaching this conclusion, the court relied on its 2005 decision in Simon v. Progressive Express Insurance, the Fifth District’s decision in Progressive American Insurance v. Stand-Up MRI of Orlando in 2008 and the First District’s decision in Sheldon v. United Services Automobile Association in 2010, which held that, under the English rule, the insurer must pay the bills in order of receipt unless the insurer has a good faith reason to deny or reduce them as noncompensable.

If the medical provider wishes to challenge the denial or reduction, it may resubmit its claim or file suit but will only be entitled to whatever benefits are available on the policy at the time the provider proves that the denial or reduction of its bill was erroneous.

The Northwoods court noted that factual disputes commonly arise in personal injury protection cases regarding the amounts due to the provider. Therefore, “the English rule would have application only to those claims which are settled either by insurance company acceptance or by resolution of disputed charges through suit.” Thus, it seems that the Fourth District would conclude that a subsequent provider may not challenge the compensability of a priority provider’s bills.

By contrast, in Coral Imaging v. GEICO in 2006, the Third District held that Coral Imaging was entitled to benefits because GEICO improperly exhausted the policy limits and wasted the insured’s benefits on bills from a different provider which were noncompensable because they were not timely submitted.

At first blush, the opinion seems to conflict with Northwoods because it allowed a medical provider to challenge the insurer’s exhaustion by asserting the noncompensability of another provider’s bills. However, Coral Imaging can be harmonized with Northwoods by reading Coral Imaging as applicable only to cases where there was no factual dispute regarding the noncompensability of the priority provider’s paid bills. In Coral Imaging, unlike the Northwoods, Stand-Up MRI, Simon and Sheldon, there was apparently no factual dispute regarding the noncompensability of the other provider’s bills.

Those bills appear to have been concededly untimely and therefore noncompensable. Absent such a concession, a medical provider should not be permitted to mount a challenge to the compensability of another provider’s bills. To do so would force insurers to litigate in every single case even if it had a good faith reasons supporting its payment decisions.

Another major distinction between Coral Imaging and Northwoods is that the providers in Northwoods argued that State Farm should not have reduced their bills based on the Medicare fee schedule. However, unlike Coral Imaging, there was no allegation that State Farm wasted the policy limits by paying noncompensable bills. Every cent that State Farm paid was concededly due and owing. Therefore, State Farm fulfilled its obligation to make payments of compensable bills up to the policy limits. Thus, absent a showing that State Farm exhausted bad faith, Northwoods could not recover additional benefits from State Farm.