November 29, 2007

Re: First-Party Automobile Insurance Medical Benefits

TO THE COMPANIES IN INTEREST:

You may be interested in a decision issued last week by the Supreme Court of Pennsylvania regarding interest on first-party automobile insurance medical benefits.

In Schappell v. Motorists Mutual, et al., a class action case against several insurers originating in Dauphin County, the Supreme Court held that when an automobile insurer pays first-party medical benefits more than thirty days after its receipt of “reasonable proof of the amount of the benefits”, interest is owed to the medical provider under Section 1716 of the Pennsylvania Motor Vehicle Financial Responsibility Law on the late payment.1 Moreover, the Court specifically found that providers have a “private cause of action” for that interest.

This ruling may not seem surprising to many of you who handle claims in the first-party area, as you are accustomed to paying interest to providers at the conclusion of the “PRO” or “peer review” process in those instances where the PRO advises that the services rendered were reasonable and necessary, and also when a Court in a litigated case determines that benefits are owed. 75 Pa.C.S. §§1797(b)(5), (6). However, the Court’s ruling pertained neither to the PRO process nor to litigated claims, but rather applies to situations where insurers are allegedly processing and paying provider bills without challenge - but paying them late. The Court made it clear that the right of providers to collect interest on overdue bills is separate and apart from the providers’ right to sue for unpaid medical benefits under Section1797(b)(4).

Certainly, for any insurers which have not been tendering interest on late payments, the Court’s ruling in Schappell will mandate a significant departure from earlier practice.