A Guide to Personal Injury Protection (PIP)
January 1, 2021
Understanding personal injury protection (PIP) is a crucial yet often overlooked aspect of accurate underwriting for medical and legal funders.
PIP is important to understand whether you run a medical or plaintiff funding business because PIP status directly affects the total amount of liens that could inhibit recovery, and therefore, your potential investment.
With no or low PIP coverage, there is a higher likelihood of medical liens on the case. This creates more opportunity for medical funders, but reduces the claim’s potential value for legal funders.
Conversely, with higher PIP coverage, there is a lower possibility of medical liens being attached to the claim. While this may preserve value for legal funders, it reduces the opportunity for medical funders.
The rest of this post will provide answers to the following questions:
- What exactly is PIP?
- How are damages defined?
- What questions should I consider for underwriting?
Who are the different parties involved?
Before diving into some of the nuances of PIP coverage, let’s first briefly review the various parties involved in a PIP claim, as these are terms used throughout the remainder of this post.
First Party (insured / client / plaintiff)
The person initiating the claim and who was injured by an accident. This party is eligible for PIP coverage under their own policy.
Second Party (plaintiff’s insurance company)
This company provides the PIP/No-Fault Coverage to the injured person (first party).
Third Party (the Defendant / Insurance Carrier)
This party is represented by a different company and possesses bodily injury coverages necessary to pay a “third party claim” from the plaintiff in the case of serious injuries. The third party has nothing specific to do with No-Fault/PIP.
What Exactly Is Personal Injury Protection (PIP) Insurance?
“PIP” or “No-Fault” insurance are terms used interchangeably to refer to an extension of car insurance offered in some but not all states under which the insured is indemnified for his/her losses by his/her own insurance company. This insurance coverage helps pay the driver’s and/or passenger’s medical bills if either party was injured in a car accident, regardless of fault. As touched on above, PIP is considered 1st-party coverage.
The following terms are used interchangeably in the insurance/litigation world, but are generally referring to the same things:
- PIP (Personal Injury Protection) - Coverage provided by an insurance company with a pre-set or chosen coverage limit.
- NF (No-Fault) - Regulation that precedes PIP coverage whereby a person’s medical bills (and other expenses) are covered under his/her own first party coverages, regardless of who is at fault in an accident.
- Med Pay - Alternative coverage that can supplement or take the place of PIP.
What does PIP cover?
- Medical expenses
- Lost wages
- Substitute services
- Funeral expenses
- Replacement benefits
What is excluded from PIP?
- Damage to vehicle
- Damage to other people’s property
- Medical expenses that exceed your coverage limits
- Compensatory damages
Why does it exist?
- PIP was designed to restrict/limit frivolous lawsuits related to injuries, help promptly pay personal injury claims, and lower potential litigation costs (Esurance).
- PIP/No-fault require the injuries to meet a predetermined descriptive, verbal, or monetary threshold of injury in order to warrant compensatory recovery from a 3rd Party.
How are damages defined?
There are two primary types of damages to consider in all personal injury cases, and PIP introduces a bit of a wrinkle to keep an eye out for.
The two key types of damages are:
- Special Damages: Objective, measurable damages with a quantifiable value (i.e. medical bills, lost wages).
- General Damages: Subjectively measured and meant to compensate individuals due to Pain & Suffering they have endured.
In no-fault states, special damages are not part of the negotiation for settlement as the client has not incurred any losses for his/her medical bills, lost wages, or replacement services (if he/she has, a separate “1st party action” would be needed).
What questions should I consider for underwriting?
When assessing a claim for funding, there are a number of PIP-specific questions your team should consider. Here’s a few to get you started:
- Is the claim in a PIP state?
- If yes, does the plaintiff have PIP coverage? (PIP may be optional depending on jurisdiction)
- How much coverage?
- Has PIP been exhausted?
- Are medical liens are on the case today? What is their dollar amount?
- Is the plaintiff still treating? (Should I expect those liens to continue to grow?)
- Given all of this information, how does this affect my valuation of the case?
Finally, to research state-specific PIP legislation, nothing beats a simple Google search with keywords such as “Utah PIP legislation” or “Utah No Fault.”
As exampled by this article, PIP coverage adds nuance to your underwriting and due to the state-by-state differences, can be very confusing.