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.

Conclusion

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 the left side of this page.