Whitelaw Twining Law Corporation BURDEN SHIFTING: IMPLICATIONS OF THE BC HEALTH CARE COSTS RECOVERY ACT FOR CASUALTY INSURERS
BURDEN SHIFTING: IMPLICATIONS OF THE NEW BRITISH COLUMBIA HEALTH CARE COSTS RECOVERY ACT FOR CASUALTY INSURERS WHAT IS THE HEALTH CARE COSTS RECOVERY ACT? The cost of providing health care services in British Columbia is an ongoing budgetary challenge for the provincial government. Provincial data indicates that the daily cost of operating the health care system in British Columbia is $35 million. Approximately 42% of government spending goes to health care on an annual basis. 1 Currently, the Provincial Government of British Columbia (the Government ) is in the process of implementing legislative means of recovering health care expenditures that result from the conduct of third parties. For instance, the Tobacco Damages and Health Care Costs Recovery Act [SBC 2000] c. 30, was enacted in order to recoup the Government s expenditures resulting from the treatment of tobacco related disease or the risk of tobacco related disease. More recently, and of particular significance to insurers, the Government has moved to address the costs incurred by the health care system in the course of treating individuals who have suffered personal injuries and/or death as a result of the negligence and wrongful acts of third parties. Effective April 1, 2009, the Health Care Costs Recovery Act, S.B.C. 2008 c. 27 (the Act ) will provide a legislative means for the government of British Columbia to recover, from insurers, expenditures that are related to the medical care of injured persons. As noted by Health Minister George Abbot, the Government s purpose is to ensure that those who commit the wrongdoing, and not the taxpayers, pay for the past and potential future health-care costs for impacted individuals. 2 Once in force, the Act will provide the Government with a means of inserting itself into the claims process, and of ensuring that matters are not resolved until the Government has had an opportunity to decide whether it wishes to pursue recovery of health care costs. In order to facilitate the Government s 1 Government of British Columbia, Conversation on Health: Health Care by the Numbers, Available at: http://www.bcconversationonhealth.ca/en/health_by_numbers/ 2 News Release: BC Introduces Health Care Costs Recovery Act, 2008HEALTH0036-000498, April 8, 2008. Available at: http://www2.news.gov.bc.ca/news_releases_2005-2009/2008health0036-000498.htm
- 2 - recovery of applicable health care expenditures, the Act places obligations directly upon claimants and insurers. The Act will have immediate and significant consequences for casualty insurers. Below, we provide a brief outline of the scope of the Act, and the powers that it accords to the Government. We also set out the obligations imposed by the Act that insurers must be aware of, and comply with, from the inception of a claim. Finally, given that the Act essentially creates a new head of recoverable damages, we discuss the implications of the Act for the process of setting reserves. SCOPE OF THE HEALTH CARE COSTS RECOVERY ACT In essence, the Act permits the Government to recover expenditures incurred in the course of providing treatment services arising from personal injury to, or the death of, a beneficiary, defined as a person enrolled in the Provincial Medical Services Plan. The injury or death must result, directly or indirectly, from the conduct of a wrongdoer. A wrongdoer is defined by Section 1 of the Act as follows: (a) (b) a person whose negligent or wrongful act or omission causes or contributes to a beneficiary s personal injury or death, and a person who is responsible at law for the acts or omissions of a person referred to in paragraph (a) but does not include the beneficiary. Where an insured is liable, either in whole or in part, for damages suffered on account of personal injuries, an insurer is obliged to reimburse the Government for health care costs. This broad standard suggests that wrongdoers and their insurers may be required by the Act to reimburse the Government for treatment costs even if the personal injuries sustained by a beneficiary constitute an aggravation of an earlier condition from which that beneficiary suffered. The Act also addresses circumstances where multiple individuals or entities are jointly or severally liable for a beneficiary s injuries. The Act directs that health care costs are to be apportioned between or among the tortfeasors. Section 17 of the Act provides as follows: If it is determined in a legal proceeding referred to in section 3 (1) [obligation to claim], 7 (2) [government has subrogated right] or 8 (2) [government has independent right to recover] that the personal injury of a beneficiary was caused, in whole or in part, by the negligence or wrongful act or omission of 2 or more wrongdoers, those wrongdoers are jointly and severally liable for the percentage of the past and future
- 3 - costs of heath care services attributable to the personal injury that is equal to the percentage of total fault for the injury that is determined by the court to be attributable to those wrongdoers. The wording of the above provision suggests that in circumstances where two defendants are jointly and severally liable for damages, two or more liable defendants are jointly and severally liable for the portion of the Government s claim that is attributable to their negligent or wrongful conduct. For example, if the claimant is 25% negligent for the incident that caused his or her injuries, the liable defendants are jointly and severally liable for 75% of the Government s past and future health care costs claim. It appears that contributory negligence on the part of the claimant would not sever joint and several liability for the Government s claim. Government s Cause of Action A key development occasioned by the Act will be the entitlement of the Government to claim directly for health care costs. In the past, the Government s recovery through subrogation was complicated by common law principles. As explained by the British Columbia Court of Appeal in the cases of Semenoff (Committee of) v. Kokan (1991), CanLII 532, and the Yukon Supreme Court in Minet v. Kossler, (2007), YKSC 30, common law principles of indemnity and subrogation provide that, unless a claimant is under an obligation to pay for the cost of health care services, no right to recover this sum from a defendant exists. Given the landscape of the common law, a government requires a statutory right to subrogate for health care costs in a publicly-funded system in which an injured claimant is not required to pay for health care services rendered. The Act endeavours to fill this gap, and provides the Government with a statutory basis to recover for health care expenditures. The Act also goes one step further and accords the Government its own cause of action to recover from tortfeasors and their insurers. Upon the proclamation of the Act, insurers may see the Government become directly involved in claims by joining an action commenced by an injured claimant (beneficiary), or by commencing its own action pursuant to Sections 7 and 8 of the Act. If the Government takes the latter approach, the injured beneficiary is compelled to assist the government in pursuing its claim. If a claimant decides to commence an action for damages, pursuant to Section 6 of the Act the Government has the option to intervene in that litigation. Thus, a beneficiary s decision to forego litigation, or to settle without commencing an action, does not preclude an action by the Government.
- 4 - Notably, according to Section 9 of the Act, the beneficiary is not required to grant the Government permission to proceed should the Government opt to commence legal proceedings. A beneficiary and his or her legal representatives remain obliged, however, to fully cooperate with the Government throughout the course of its efforts to recover health care costs expended in the course of treating the beneficiary or that are anticipated in future. Beneficiaries must make available to the Government records and information that detail the following: (i) (ii) (iii) (iv) (v) the nature and extent of the injury; the treatment, current condition and prognosis of the injury; the rehabilitation of the beneficiary in respect of the injury; the cause, origin and circumstances of the injury; and the health care services that have been received or may be required by the beneficiary in relation to the injury. A beneficiary is required, at the expense of the Minister, to undergo a medical examination or evaluation if requested. Section 13 of the Act also requires that insurers that are liable to pay under a settlement agreement must make available documents commonly obtained in relation to a claim for personal injuries, such as clinical records and medical reports. However, the wording of this section is broad, possibly compelling insurers to, upon Government request, provide documents relating to a liability investigation, such as adjuster s reports. The Act provides that privilege over these documents must be maintained by the Government. Upon the Government s request, an insurer must also provide a copy of the policy, the police report (if obtained) and any pleadings filed in an action for damages. Generally, as the scope of the Act is broad, if a person who could be considered to be a beneficiary under the Act suffers personal injury, it is most likely that the Act will apply. However, the Act does not apply to all losses. As set out in Section 24 of the Act, there are several instances where the Act will not apply: (i) claims arising from motor vehicle accidents if the wrongdoer has coverage under the plan as defined by the Insurance (Vehicle) Act;
- 5 - (ii) (iii) claims for personal injury or death arising out of a tobacco related wrong as defined in the Tobacco Damages and Health Care Costs Recovery Act; and claims for personal injury or death arising out of, and in the course of, the beneficiary's employment if compensation is paid or payable by the Workers' Compensation Board out of the accident fund continued under the Workers Compensation Act. While motor vehicle accident claims are generally excluded by the Act, it is important to note the specific wording of this provision. Section 24 of the Act applies to motor vehicle accidents where the wrongdoer has coverage under the plan as defined by the Insurance (Vehicle) Act. In the Insurance (Vehicle) Act, the plan is defined as a plan of universal compulsory vehicle insurance, administered by the Corporation (the Insurance Corporation of British Columbia), providing coverage under a motor vehicle liability policy as required by the Motor Vehicle Act. Arguably, the Corporation s plan is primary insurance. Accordingly, it appears that the Act may apply to policies of out-of-province motor vehicle insurers. LOSSES TO WHICH ACT APPLIES (examples) Products liability Occupier s liability Family Compensation Act claims LOSSES TO WHICH ACT DOES NOT APPLY Motor vehicle accidents [if wrongdoer has coverage under the plan as defined by Insurance (Vehicle) Act] Losses arising from a tobacco-related wrong as defined in the Tobacco Damages and Health Care Costs Recovery Act Workers Compensation Board claims Class action lawsuits for personal injury Motor vehicle accidents where insurer is out-of-province Section 8 of the Act suggests the Government s independent right to recover will not apply to losses in respect of which the limitation period (in most cases two years), plus an additional six month period, lapsed prior to April 1, 2009. However, it is strongly recommended that insurers obtain legal advice on this matter.
- 6 - Types of Recoverable Costs Of particular significance is the broad scope of the health care costs in respect of which the Government is entitled to recover. The Act defines health care services, for which the Government must be compensated, to include the following: (i) (ii) (iii) (iv) Benefits as defined in the Hospital Insurance Act; Benefits as defined in the Medicare Protection Act; Payments made by the government under the Continuing Care Act; and Expenditures made under the Continuing Care Act. The above payments and benefits include most services typically rendered to an injured person, and include, but are not limited to, the following services: (a) (b) (c) (d) (e) treatment for acute illness or injury; hospital accommodation; operating and case room facilities; diagnostic or therapeutic X-ray and laboratory procedures; anesthetics, prescriptions, drugs, dressings, and cast materials. The Act also includes a catch-all provision, establishing that recoverable health care services include any other act or thing, including, without limitation, the provision of any health care treatment, aid, assistance or service or any drug, device or similar matter associated with personal injury While only past hospital costs have been recoverable by the Government under the existing, informal regime, the Act expands the recoverable costs to include all future medical costs, including future expenses. Section 1 of the Act defines future cost of health care services as follows: the present value of the estimated total cost of all health care services that are provided, or are reasonably expected to be provided, to a beneficiary as a direct or indirect result of a personal injury described in section 2 after the date of settlement or, if there is no settlement, after the first day of trial.
- 7 - Once the Act is in force, the Government will be in a position to recover all health care costs, including physician s fees and tests (i.e. not just hospital costs). Under the existing, informal arrangement, only hospital costs are recoverable by the Government. Accordingly, insurers may wish to look at their open files in order to determine whether existing hospital claims can be resolved in exchange for a complete Release executed by the Ministry. Potentially, the entitlement of the Government to recover future health care costs will be the most consequential aspect of the Act for insurers. In many cases, before the full extent of a beneficiary s injuries is known, and before medical evidence respecting prognosis is obtained, it may be exceptionally difficult to assess a claim and reserve appropriately. For example, it appears that, if it is reasonably likely that an injured beneficiary will require surgery in the future, the cost to the Government of providing that surgery will be recoverable under the Act as it presently stands. However, the timing for this and other eventual costs (including present value calculations) will be very difficult to determine. As the Act is implemented, there will be a need for Government to quantify the health care services that it covers, hopefully enabling insurers to obtain a better sense of the total value of future recoverable health care costs. For instance, an index providing current costs of services, such as specialist consultations, tests and surgeries, would be beneficial. Depending upon how the Act is administered by the Government following its proclamation, it is conceivable that a beneficiary s treatment providers, and any experts retained by the defence, will be asked to provide even more detailed assessments of the nature of future treatment, in order to more clearly indicate how a beneficiary who suffers from ongoing symptoms may interact with the health care system in future. Claims Management Strategies A primary concern for insurers upon the proclamation of the Act will be setting appropriate reserves. Other than the information provided by Medical Services Printouts, which detail billings to the government arising out of the past treatment of an injured person (to the date of the printout), and estimates provided by medical experts regarding future care, all of the necessary tools for an insurer to assess the claim at an early stage do not appear to currently be in place. Insurers should proceed cautiously when setting reserves in relation to a claim brought by a badly injured beneficiary who, in all likelihood, will require extensive treatment. Insurers may wish to obtain clinical
- 8 - records very early in the claims process in order to develop a sense of the severity of a beneficiary s injuries. Records should be carefully perused for all suggestions by treating practitioners of a beneficiary s need for future procedures. Conducting early Examinations for Discovery will also assist in the information gathering process. When a claim is reported, the Ministry of Health should be contacted in order to obtain a printout of the Ministry s past health care expenditures in respect of a beneficiary s treatment. The MSP Printout can also be reviewed in order to calculate the sums billed to the Provincial Medical Services Plan by treatment providers including physicians and physiotherapists. Valuation of the Government s claim for future health care costs for an injured beneficiary is considerably more difficult, and will likely present a challenge for insurers as they manage claims. As noted above, a schedule or index setting out treatment costs does not presently accompany the Act. Accordingly, there is no obvious means for assessing present value of the potential value of the Government s estimated future expenditure for treatment at an early stage. If upon investigation of the claim it is evident that there will be no liability upon the insured, the insurer should endeavour to settle the claim as early as possible, ideally for a waiver of costs. However, even if the facts indicate that there is no liability on the part of the insured, and the action against the insured will fail, an insurer must still comply with the Act s notification obligations detailed below. If it appears that liability may fully rest with the insured, and the nature of the beneficiary s injury appears to be straightforward and to have plateaued, the insurer should determine if it is possible to settle with the Government at an early stage. Proceeding in this manner may avoid any future unforeseen health care costs that may arise as time goes by. Early settlement of the Government s claim may be problematic if it appears that liability only rests only partly with the insured, unless the multiple defendants can agree to settle with the Government and sort out relative contributions at a later date.
- 9 - Obligations of Parties It is presently unknown whether there will be a threshold amount under which the Government will decline to pursue recovery. Irrespective of this, the Act imposes certain obligations upon both insurers and beneficiaries in order to ensure that the Government is aware of the claim and given the option to recover. The duties owed by insurers, set out by Section 10 of the Act, will largely come into play at two key stages in the claims process: the initial report of the claim and the settlement of the claim. Obligations of Insurers Notification: Insurers must notify the Government within 60 days of the date on which the insurer learns that an insured has, or may have, caused or contributed to the personal injury of a beneficiary. The Insurer must notify the Government of the claim in the prescribed form. It appears, however, that a form has not yet been developed for this purpose. Documentation: Upon Ministry request, an Insurer must produce a copy of the policy, the police report (if obtained) and/or pleadings (including Affidavits) filed in an action arising out of the loss (if any) within the time frame requested by the Minister. Approval of Settlements: The Government must approve settlements that involve a claim for personal injury or death. A claim must not be settled in the absence of notification to the Ministry of Health, in the prescribed form. The settlement must be accepted by the Ministry. A Release that is executed in the absence of Ministry consent is void. Thus, the Act inserts an additional step into the settlement process. Attaining a settlement, either informally or through processes such as mediation, will no longer result in the conclusion of a matter. Any settlement reached, in an action to which the Act applies, is subject to Ministry s approval. Depending upon the volume of medical documentation that the
- 10 - Ministry may wish to review before approving a settlement, it is anticipated that a considerable period of time could pass between achieving a settlement agreement with a beneficiary in principle, and the final conclusion of a matter. The potential therefore arises for a claim to remain active, despite an agreement between the beneficiary and the insurer with respect to payment of the claim, if Ministry approval is withheld. Practically, files must not be closed until Ministry approval is received. A Consent Dismissal Order, the instrument usually filed after settlement in order to conclude a proceeding for all purposes, will not be accepted by the Court in the absence of the Ministry s consent. The Government will likely issue a Minister s Certificate pursuant to Section 16 of the Act, which provides as follows: A certificate (a) purporting to have been issued by or on behalf of the minister for the purposes of (i) a health care services claim, or (ii) recovery under section 13 (5) [settlement of claims], and (b) setting out the health care services that have been received by a beneficiary or class of beneficiaries and the health care services that a beneficiary or class of beneficiaries will likely receive in the future for personal injuries suffered as a result of the negligence or wrongful act or omission of a wrongdoer, is proof of those health care services. The Act specifies that a Minister s Certificate is conclusive proof of the past cost of health care services, the future cost of health care services, or both, as the case may be. On the face of it, the wording appears to indicate that a Minister s Certificate is absolute proof of the Government s past and future health care costs claim (i.e. no opportunity for Defendants and their insurers to question calculation of potential future health care costs). Litigation questioning the effect of the Minister s Certificate is anticipated following the implementation of the Act. The courts may ultimately conclude that a Minister s Certificate is prima facie, not absolute, proof of the Government s claim.
- 11 - Of note, while a settlement requires Ministry approval before it brings a matter to a close, the Government is not barred from later initiating a claim for recovery in the case of a settlement. Obligations of Beneficiaries and their Legal Representatives Pleadings: A Beneficiary who commences an action for personal injuries, or a spouse, parent, child or grandparent of a deceased that initiates a claim through the Family Compensation Act, R.S.B.C. 1996 c. 126, is obliged to claim for the cost of health care services in the legal proceeding. [s. 3] If a beneficiary fails to claim for the cost of health care services, a court must permit an amendment to the Writ of Summons and Statement of Claim to include this aspect of the claim, up to 6 months after these documents are filed. Notification: A Claimant who opts to commence a legal proceeding must notify the Government within 21 days of the action being commenced. CONCLUSION It will be some time before the full implications of the Act are understood. For the time being, it is clear that a cautious approach to reserve-setting, in circumstances where an injured beneficiary has substantially relied upon health care services administered publicly or may require extensive treatment in future, is required.