How Insurance Works

How Insurance Works

     Whether or not you are compensated for the injuries you incurred as a result of another’s negligence depends on the at-fault party’s insurance coverage and the extent of your own insurance coverage.  The following types of insurance policies are commonly available:


     Collision coverage pays for the repair of your automobile if you are involved in an accident and is not fault-based; that is, such coverage obligates your insurer to pay for the repair or total loss of your vehicle if you are involved in either an at-fault or a not at-fault accident.  Generally speaking, there are no coverage limits associated with collision coverage, irrespective of the original price or quality of your vehicle.  The minimum property damage liability coverage required by the State of Nevada is $10,000.00.


     Liability coverage pays for accidental bodily injury and property damages to others. Personal injuries covered by this form of coverage include damages such as medical expenses, pain and suffering and lost wages.  Property damage includes damaged property and automobiles.  Under a basic liability coverage policy your insurance company will pay for defense and court costs as well.  

     Currently, Nevada law requires that an insurance policy issued within the state must have liability limits of at least $15,000/$30,000.  The first number reflects the maximum amount that an insurance company has to pay to any one individual in an accident.  Thus, if the person who hit the Plaintiff only has a $15,000/$30,000 policy, their insurance company is only obligated to pay up to$15,000 and nothing more.

     The second number is the amount the insurance company will be obligated to pay for the accident in total.  For example, if five people were injured, the insurer would not have to pay over $15,000 per person.  However, for the entire group the insurer would not have to pay more than $30,000.

     What happens when you are injured badly enough that fair compensation for your injuries would be more than the other person’s policy limits?  As the injured party, you can turn to your own insurance for a part of your policy called UIM, or Underinsured Motorists Insurance, which is a good way to work out the difference between your costs and the other person’s insurance policy limits in a personal injury case.


Uninsured or Underinsured Motorist

     Nevada law provides for underinsured motorist (“UIM”) insurance, which allows the person covered by the insurance policy to recover damages if involved in an accident and the driver responsible for those injuries doesn’t have enough or sufficient insurance coverage.  UIM is optional in the State of Nevada.   By Statute in Nevada, if you have uninsured motorist coverage, you also have underinsurance coverage.

     UIM coverage is triggered when your damages are more than the insurance policy of the person at fault in the accident will pay.  With respect to UIM coverage, the UIM laws allow insurers to make certain exclusions, which are specific things or persons that are not covered by an insurance policy.

     Uninsured motorist policies may follow the “excess-type” model or the “reduction-type” UIM model. Where the latter is followed, the insured’s UIM coverage limits are reduced by the underlying liability policy limits.  For example, if the Plaintiff had $50,000 in UIM coverage and the at-fault party had $15,000 in bodily injury liability limits, then the Plaintiff would have $35,000 in UIM coverage available for that accident.  If the bodily injury liability limits and the UIM limits are equal, then there is no UIM coverage available under a “reduction-type” policy.

     Nevada follows the “excess-type” UIM model.  N.R.S. 687B.145 (2) provides: Uninsured and underinsured vehicle coverage must include a provision which enables the insured to recover up to the limits of his own coverage any amount of damages for bodily injury from his insurer which he is legally entitled to recover from the owner or operator of the other vehicle to the extent that those damages exceed the limits of the coverage for bodily injury carried by that owner or operator. If an insured suffers actual damages subject to the limitation of liability provided pursuant to NRS 41.035, underinsured vehicle coverage must include a provision which enables the insured to recover up to the limits of his own coverage any amount of damages for bodily injury from his insurer for the actual damages suffered by the insured that exceed that limitation of liability.

Thus, in the example above, the Plaintiff would have $65,000 in UIM coverage available for that accident. 

Medical Payments Coverage

     Medical payments coverage (commonly referred to as Med Pay) pays for reasonable and necessary medical expenses resulting from an auto accident.  Med Pay is not fault-based.  Thus, if you run into a wall because you were talking on your cell phone and not paying attention your Med Pay will still cover your injuries.  In Nevada, Med Pay coverage can range from $1,000.00 to $100,000.00.

     In addition, Med Pay pays for your passenger’s medical bills, also regardless of fault.  Thus, if your Med Pay coverage were $4,000.00 and you had four passengers in your vehicle at the time of the accident then all occupants are covered up to the limits.


     The doctrine of subrogation provides that if an insurer pays a loss to its insured due to the wrongful act of another, the insurer is subrogated to the rights of the insured and may prosecute a suit against the wrongdoer for recovery of its outlay.  The doctrine is best illustrated by an example.  If after an accident you use health insurance coverage to pay for accident-related medical bills, your health insurance company may have a “Right of Subrogation”; that is, if you receive money from the adverse driver’s bodily injury liability coverage, you must pay back your health insurance carrier for what they paid out on accident-related medical bills. 

     Unfortunately for insurers, Nevada is an anti-subrogation state.  That is, an insurer may not collect from their insured’s personal injury award regardless of whether the insurance company paid the bills that formed the basis of the award at issue.  In 1986, the Nevada Supreme Court justified this rule by holding that subrogation violates Nevada public policy, stating, “We concluded that it violates public policy to allow an insurer to collect a premium for certain coverages and then allow the insurer to subrogate its interest and deny the insured his benefit.”

     In that case, the rationale behind precluding subrogation was described as the following: (1) The insurer receives a windfall when it collects premiums and then denies coverage; (2) Subrogation plays no part in rate schedules; (3) The insured incurs all the costs and effort in collection, while the insurer receives 100% of its payments without effort or cost; (4) The insured rarely receives adequate compensation; and (5) The third-party tortfeasor’s insurer deliberately anticipates the insured’s own insurance coverage.


Subrogation-Medicare and Medicaid

     As of July 1, 2009, Medicare Secondary Payor requires insurers to report any settlement, judgment or award to Medicare.  Failure to report any settlement, judgment or award will result in a $1,000.00 per day penalty to the insurance company.  Medicare Secondary Payor can sue for double damages, plus interest.  The suit can be initiated against the insurance company, the Medicare beneficiary and his or her attorney, as well as the physician, if the settlement of the claim or suit does not protect Medicare’s subrogation interests.


When the Medical Bills for Injuries Exceed Policy Limits

     What happens when the accident you were involved in causes injuries far in excess the at-fault party’s liability insurance?  One option is to settle for the policy limits and take responsibility for the remaining bills.  In that scenario, your lawyer is obligated to pay medical expenses before paying you out of your personal injury award.

     Alternatively, you could try to collect money directly from the person who hit you.  Unfortunately, if the person that caused the accident isn’t wealthy or well to do, then recovering anything is in doubt; that is, in general, people are very hard to get money out of, and trying to get money from somebody who doesn’t have any isn’t worth the hassle and expense.