Right, no fault med pay is a common portion of home insurance, but as you said, it is a thousand bucks. Go after the liability claim.
Here is how it would work in my state (and I have made up all of these numbers except for the multiplication):
Let’s say that the aunt had medical bills that were $30,000. She is covered by an Obamacare bronze plan and has a deductible of $6,000. Her insurance company looks at the bills and tells the hospital to pound sand, that they only pay $8,500 for the services rendered. The Aunt is billed her deductible plus any copays, say $6,400.
Without suing her nephew, she is out $6,400 for her injury, and her insurance paid $2,100. But what if she sues him and claims he is liable? She is entitled to full compensation if the jury agrees. She is entitled to reimbursement of her full medical expenses of $30,000. RNATB cited the collateral source rule, but in my state, the recovery is not reduced by insurance contractual adjustments.
The theory is that a tortfeasor is liable for the whole amount. If his victim had the good foresight to purchase medical insurance, then that is a separate arrangement that she made. It was not made to insulate wrongful parties. So the collateral source rule says that she is entitled to the full amount of $30,000.
Her insurance does have the right of subrogation to the tune of $2,100 (the actual amount it paid). Anything she recovers, the first $2,100 is paid to the insurance company. Anything above that, she keeps herself.
But it gets better, in addition to her medical bills, she has been put in pain, has missed work, taken trips to the doctor, had to miss social events, couldn’t have sex with her husband during her injury, etc. These additional damages are recoverable in addition to her medical bills.
The standard practice in my state is to make a demand of 5 times meds. In this case, it would be $150,000. Settlement is usually reached somewhere between 2.5 and 3.5 times meds, in this case $75,000 to $105,000. This was a special case because of suing the 8 year old, so the insurance company went for broke and took it to trial (or alternatively, she refused a settlement offer).
So, it is clear why she sued. Instead of being out $6,400, she would have likely recovered about $80,000. As my torts professor used to say: sue the little bastard. 