11.4 Claims, Coordination of Benefits, and Subrogation

The claims provisions turn the policy promise into payment. They define how a loss is reported, who gets paid, and — critically — how multiple coverages interact so that the insured is indemnified but not enriched. The guiding doctrine for medical-expense insurance is the principle of indemnity: the insured should be restored to their pre-loss financial position, not profit from a loss.

The Claims Sequence (Review)

The required provisions impose a defined clock, and the exam tests it relentlessly.

If the insurer fails to furnish claim forms within 15 days, the insured may submit proof of loss in any reasonable written form describing the nature and extent of the loss. This protects the insured from delay tactics: the insurer cannot defeat a valid claim simply by withholding its own paperwork. Note that proof of loss may be submitted up to one year late where the insured was legally incapacitated, but otherwise the 90-day standard controls.

Coordination of Benefits (COB)

When a person is covered by two group health plans, the coordination of benefits provision determines which plan pays first (the primary plan) and which pays the remainder (the secondary plan). Together the plans pay no more than 100% of the allowable expense — never duplicating payment.

Order-of-benefits rules

• The plan that covers the person as an employee/member is primary over the plan that covers them as a dependent.
• For a child covered by both parents, the birthday rule applies: the plan of the parent whose birthday (month and day) falls earlier in the calendar year is primary.
• The plan covering the person as an active employee is primary over a plan covering them as a retiree or laid-off worker.

COB worked example

A hospital bill is $10,000 (the allowable expense). The insured is covered as an employee under Plan A and as a dependent under spouse's Plan B.

1. Plan A is primary (covers her as an employee). It pays per its terms — say 80%, or $8,000.
2. Plan B is secondary. It pays the remaining allowable expense up to 100%: $2,000.
3. Total paid = $10,000. The insured collects no more than the actual bill; COB prevents a profit.

Birthday rule worked example: A child is covered by both parents. The father's birthday is March 3; the mother's is September 12. The father's plan is primary because his birthday falls earlier in the calendar year — the rule looks at month and day, not which parent is older.

Subrogation

Subrogation lets an insurer that has paid a claim step into the insured's shoes and recover from a negligent third party who caused the loss. If the insured were allowed to keep both the insurance payment and a tort recovery, they would profit twice from one loss — again violating indemnity.

Worked example: An insurer pays $15,000 in medical bills after the insured is injured by a negligent driver. The insured later wins $15,000 from the at-fault driver for those same medical costs. Through subrogation, the insurer recovers its $15,000 from that award. The insured is made whole once, not twice.

Subrogation applies to medical-expense (indemnity) coverage. It generally does not apply to pure life insurance, which is a valued contract paying a fixed face amount regardless of any third-party recovery. The same reasoning explains why coordination of benefits and subrogation appear in health insurance but not in life: a person's life is not an indemnity loss with a measurable dollar value, so there is no "excess" to recover or coordinate.

Indemnity vs. valued contracts

Understanding this split is high-yield. Medical-expense and disability reimbursement coverages are contracts of indemnity — they pay actual loss, are subject to COB and subrogation, and cannot pay a profit. Life insurance and valued benefits (such as a flat $200-per-day hospital indemnity benefit) are valued contracts — they pay a stated amount regardless of actual expense, so multiple such policies can each pay in full and neither COB nor subrogation reduces them. On the exam, when a question mentions "reimbursement of actual charges," think indemnity; when it mentions a "fixed daily/weekly amount," think valued.

Facility-of-Payment and Assignment

The payment of claims provision directs benefits: living-insured benefits go to the insured, death benefits to the beneficiary or estate, and medical benefits may be paid directly to the provider through an assignment of benefits. A facility-of-payment clause lets the insurer pay a relative or whoever incurred funeral or last expenses if no beneficiary is named, and discharges the insurer's obligation up to the amount paid in good faith.

Taken together, these provisions show a consistent design: pay the right person promptly, but never let any party collect more than the loss. Coordination of benefits, subrogation, and the indemnity principle all enforce that ceiling, while the claims timeline and assignment rules ensure money reaches the insured or provider without unnecessary delay.