Insurance Law: What is a Subrogation Action?
Have you ever been accidentally injured, visited the emergency room for treatment, and submitted the bill to your health insurer for payment? Most people have had this experience, either themselves or with their children. Your health insurer will usually pay for the costs of treating your injuries. However, after making payment (and sometimes even before they submit the payment) your insurer may contact you to discuss how the injuries occurred. The insurer is probably trying to determine if someone (other than the injured person) is fully or partially to blame for the injuries. The insurer may even try to determine if you are planning on suing another party for the injuries you have received. Ultimately, the reason the insurer is asking these questions is to determine whether some third party may be responsible for paying for your injuries, thereby relieving some of the insurer's financial responsibility. The above example embodies the concept and reasoning behind insurance "subrogation."
Understanding Subrogation Rights and Interests
If you have been injured in an accident that has resulted in damages, at some point you will undoubtedly hear the term "subrogation." Literally, subrogation means one person or party stands in the place of another. Subrogation issues surface when a person has been injured and someone other than the person or party at fault pays for all or some of the damages resulting from the injury. By definition, a subrogation claim allows the innocent paying party, also known as a "collateral source," to stand in the shoes of the injured party. The collateral source asserting a subrogation claim will not be entitled to greater rights than those possessed by the person who was entitled to receive the initial benefits. Moreover, any legal defenses that could be used against the injured party may also be asserted against the collateral source provider.
Generally, a "collateral source" is a private entity, usually a private insurer, or a government agency, which makes payments to a party who has a personal injury claim. Subrogation issues involve the question of which part of a settlement or jury verdict must be used to repay the collateral source for payments made to the injured party. At the heart of this issue is the concept that an injured party should not be allowed a "double recovery." It is believed that injured parties should recover for the actual damages they have incurred, but should not be allowed to profit from their loss. For example, if the injured party's insurer paid $12,000 to the healthcare provider that treated an injured party, that party should not later be allowed to also collect $12,000 from the party causing the injury AND then be allowed to pocket the $12,000. This would result in a windfall to the injured party. Instead, the party's insurer should be allowed to collect the $12,000 payment either directly from the at-fault party or from the injured party. In turn, subrogation is supposed to help lower insurance rates.
The above example would work the same if a government benefits program had paid the $12,000. In fact, government benefit programs often include statutory provisions (provision written into the laws that create the benefits), which require reimbursement of payments made directly from the person or party that caused the injury. Injured parties who look to such programs as the federal workers' compensation program, Medicare, veteran's benefits, medical assistance, and state assistance programs should be aware that these programs generally have and pursue their subrogation rights.
For illustration purposes, when an employee is injured at work, usually some person other than the employer bears some responsibility for causing the employee's injury. For workers' compensation purposes, that individual or entity is known as a third party. While the presence of a third party does not change who bears ultimate responsibility for compensating the employee for his or her work-related losses, subrogation allows an employer paying workers' compensation benefits to either step into the employee's place or participate with the employee in a lawsuit against the third party. The effect of subrogation is that the employee is only paid once for those amounts associated with medical expenses and wage loss that the employer has paid under workers' compensation. Any portion of an award in a lawsuit that includes amounts for losses paid by workers' compensation is refunded to the employer asserting the subrogation claim.
Issues associated with subrogation can cause great difficulties when there is a settlement of a lawsuit against a third party. Both the injured party and the collateral source provider may be allowed to settle portions of their claims with the at-fault party. However, such settlements may affect an insured's right to receive ongoing benefits or an insurer's responsibility to pay them. Frequently, the right to receive ongoing benefits and the obligation to pay benefits depends upon providing adequate notice to the non-settling party of the intended settlement.
Each state differs in exactly how and when insurers are allowed to assert their subrogation interests, and how the existence of a subrogation interest affects the settlement of third party lawsuits. If you are a victim of an injury and are being bombarded by various parties asserting "subrogation" rights, you should consult an attorney who understands the subrogation laws in your state.
Understanding subrogation interests can be difficult. Failing to obtain such an understanding, however, may prove to be costly for an injured party. Hiring an attorney who knows the subrogation laws in your state will help protect you from the unintended outcomes that can otherwise happen when a subrogation claim exists. If you are receiving benefits from a collateral source, subrogation issues can affect any settlement or lawsuit you may have against a third party. For this reason, it is important to work with an attorney who has experience dealing with the complications that subrogation issues can present. Such an attorney can best advise how subrogation will affect your personal injury claims, an insurer's third-party lawsuit or any settlements you may wish to make. To find an experienced attorney, use the "Find a Lawyer" tool on this page.