Subrogation allows insurance companies to take a large part of your injury settlement. See how it works and what you can do to protect your compensation.
Subrogation is a legal term for the right of others (usually an insurance company) to collect money from the at-fault party for expenses paid on your behalf.
After an injury, medical expenses are typically covered by health insurance. If the injury was caused by another party’s negligence, the health insurance company may then seek to recover the money they spent on treatment.
Subrogation is important to understand if you’re negotiating an injury claim or considering a personal injury lawsuit.
Let’s take a closer look at how subrogation works and what you should ask an attorney.
How Subrogation Works for Injury Claims
Subrogation is used by insurance companies to recover the money they’ve spent on your behalf from the person or business that caused your injury.
Most insurance companies have a right to subrogation, which is often specified in the insurance policy. If it is, the insurance company has to inform the policyholder before beginning the subrogation process.
Different types of insurance companies use subrogation, such as:
- Health insurance companies
- Health maintenance organizations (HMOs)
- Workers’ compensation insurance
- Auto insurance companies
When a health care insurer covers your medical bills after an accident, subrogation allows them to get reimbursed by the at-fault party. The higher your medical costs climb, the higher the likelihood that your health insurance provider will seek reimbursement when your claim settles.
Workers’ Comp Subrogation Rights
If you receive workers’ compensation benefits for an on-the-job injury, you normally won’t have to reimburse the workers’ comp insurance company. There’s an exception, however, if you file a claim against anyone other than your employer.
If you file a third-party lawsuit in addition to a workers’ comp claim, the workers’ comp insurance company has a right to go after your injury settlement for reimbursement.
For example, if you were injured while on the job in a car accident caused by someone else, and you sue the at-fault driver, workers’ comp will initially cover your medical expenses. Once you settle your injury claim against the at-fault driver, you’ll likely have to reimburse workers’ comp for the money they paid for your treatment.
There are three ways your health or auto insurance company can seek subrogation:
- Directly from the at-fault person
- From the at-fault party’s liability insurance carrier
- From the insurance settlement or court award you get from the accident
Your insurance company may run an “asset check” on the person who caused your injuries to see if they have money or property that can be pursued in subrogation. Asset checks are typically run if the at-fault person was uninsured.
Subrogation payments can be paid directly from one insurance company to another, such as reimbursement to your auto insurer from the at-fault driver’s insurance for car repairs, or reimbursement to your health care insurance from your no-fault PIP coverage.
Subrogation claims between insurance companies are generally handled “behind the scenes” and don’t involve the injury victim.
Subrogation also plays a part in property damage claims. If your car insurance carrier pays to get your car fixed after a collision, they will subrogate against the at-fault driver’s auto insurance to recover the cost of your repairs. If you paid a collision deductible, your company will usually get that from the other driver’s carrier too, and refund it to you.
Insurance companies use subrogation to recover money spent on your behalf, including:
- Emergency room treatment
- Medical bills paid to service providers
- Pharmacy benefits paid for medications and medical devices
- Benefits paid to cover at-home services, like home health nurses
- Car repairs paid through your collision coverage
Subrogation payments for significant injury-related expenses are often made later, after your injury claim against the at-fault party is resolved. That’s when the subrogation payment comes out of your settlement or lawsuit damage award.
Example: Insurance Company Entitled to Subrogation After Car Accident
Ashley runs a red light and slams into the side of Bill’s car. Bill is rushed to the hospital by ambulance with severe injuries.
Bill spends two nights in the hospital and requires weeks of physical therapy to get back on his feet. His medical expenses total $50,000. After Bill’s $2,000 deductible, his health insurance company paid the remaining $48,000.
In time, Ashley’s insurance company agrees to settle Bill’s injury claim for $75,000 to compensate him for his expenses, lost wages, and pain and suffering.
Here, Bill’s health insurance company can invoke its right to subrogation to recover $48,000 of Bill’s total settlement award. The health insurer has a legal right to seek reimbursement for the amount spent on Bill’s behalf.
Subrogation Prevents Double Recovery
Many injured persons are surprised and upset to learn that another insurance company can take some of their settlement. It seems unfair to lose a big chunk out of their settlement before they see a dime.
Technically, an injury victim doesn’t lose anything due to subrogation. Instead, subrogation laws are designed to keep the victim from receiving a “windfall,” or more than they deserve.
Example: Double Recovery After a Car Accident
Let’s say Medicare pays your $50,000 hospital bill after a car accident. Later on, the at-fault driver’s insurance company pays you $75,000 to compensate you for your damages, which include your medical costs.
You benefited from the $50,000 paid on your behalf by Medicare, and you also benefit from your insurance claim settlement that included $50,000 to cover your medical costs.
Lawmakers consider duplicate benefits for the same expenses “double-dipping.” Subrogation is used to avoid double recoveries. The idea is that a victim should get paid for any losses caused by an injury. However, they should not profit from the injury.
Other Liens Against Injury Settlements
Subrogation is not used to collect outstanding financial obligations, but your injury settlement is still subject to liens for your unpaid debts.
- Almost every state has laws that allow child support services to use liens to collect delinquent child support.
- Medical liens can be placed against your settlement by hospitals and doctors who haven’t been paid for your accident-related medical care.
Regardless of who uses it, subrogation and other liens work the same way, by allowing someone else to take a portion of the compensation paid to you by the at-fault party.
A lien is a legal interest in someone else’s assets. An insurance settlement is an asset. While states have laws limiting subrogation, many also have laws protecting lienholders.
Most of the time, the responsible party’s insurance company is not allowed to release your funds until they verify there are no pending liens.
The insurance company (or your attorney) can’t just pay you the money and take your word for it that you’ll pay off the liens. Some types of liens, like Medicare liens or child support liens, must be released before the rest of the settlement award can be legally disbursed to you.
Waiving Subrogation Can Violate an Insurance Policy
Be careful if you’re handling your own injury claim and the at-fault side asks you to sign a waiver of subrogation. To waive means to relinquish or give something up.
A subrogation waiver would keep your insurance company from seeking reimbursement from the person at fault. This would mean your insurance company could not recover any of the money it paid on your behalf.
Insurance agreements are legally binding contracts. Most auto and health insurance policies have a clause that forbids you from waiving the company’s subrogation rights.
In most cases, insurance companies require policyholders to notify them before signing any waivers. This requirement is supposed to ensure that the policyholder is making an informed decision.
Breaking the waiver provision can violate your insurance contract and may leave you unprotected.
Limiting Subrogation Liens
Learning the ins and outs of subrogation can help you protect your compensation from excessive subrogation liens.
Anyone with a right to subrogate cannot demand more money than they are entitled to. It’s important to remember that they “stand in the shoes” of the victim. This means they have the same rights as you do – but no more.
Legal doctrines are sets of rules or procedures that have evolved over time, often based on case law written when common issues are hashed out in court.
Most states have subrogation laws based on these common doctrines:
- Made Whole Doctrine: The Made Whole Doctrine is a legal defense to subrogation. It says that the insured policyholder must be made whole for their damages before subrogation takes place. In other words, you must get fully compensated for what you lost before subrogation payments are made.
- Common Fund Doctrine: The Common Fund Doctrine requires an insurance company to pay part of the money it recovers to your attorney if the company did not use its own lawyer. The idea here is that you paid your attorney to negotiate your injury settlement. Since the insurance company can recover some of the money they spent thanks to your attorney’s work, they should chip in on the attorney’s fees.
Statutory Limits on Subrogation
Many states have laws limiting the amount a subrogating insurance company can recover from your injury settlement.
For example, California limits subrogation liens based on the amount of your settlement, and takes into consideration if the injury victim is represented by an attorney.
California’s law states, in part:
“No lien… for the recovery of money paid [on behalf on an injury victim] for health care services…may exceed the sum of the reasonable costs actually paid.
If the [injury victim] engaged an attorney, then the lien… may not exceed the lesser of the following amounts:
(1) The maximum amount [of reasonable costs].
(2) One-third of the moneys due to the [injury victim] under any final judgment, compromise, or settlement agreement.”
The California law goes on to say that if the injury victim doesn’t have an attorney, the subrogation lien can take as much as half of the victim’s injury settlement.
Some States Prohibit Subrogation
A few states have rules that prohibit insurance subrogation in most cases:
- New Jersey
- New York
- North Carolina
For example, New York has a General Obligations law that prohibits subrogation claims in personal injury and wrongful death unless the insurer seeking subrogation meets certain criteria.
New York’s law states:
“When a person settles a claim, whether in litigation or otherwise, against one or more other persons for personal injuries, medical, dental, or podiatric malpractice, or wrongful death, it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by an insurer…
No person entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement by an insurer and an insurer shall have no lien or right of subrogation or reimbursement against any such settling person or any other party to such a settlement, with respect to those losses or expenses that have been or are obligated to be paid or reimbursed by said insurer.”
Negotiating Subrogation Liens
Subrogation liens are negotiable. This means you or your attorney can try to convince the insurance company to reduce the subrogation lien for less than the amount it spent on your behalf. An agreement on a reduced lien means you’ll enjoy greater compensation in the end.
It’s often a good idea to have an experienced attorney negotiate on your behalf. Skilled injury lawyers negotiate subrogation liens regularly. They know what to say, and whom to contact to get results.
Sometimes they can persuade an insurer to reduce a lien by saying that the full amount imposes an under hardship on you and your financial situation.
A local attorney also knows the subrogation lien laws for your state and how to protect your rights.
Protections Against Subrogation Fraud
Unfortunately, some companies commit insurance subrogation fraud. They say that they have a right to subrogation, even when they know they don’t. They manipulate subrogation laws to deliberately try and recover more of your settlement money than they have a right to.
Other times, criminals commit subrogation fraud. They learn of a personal injury settlement and reach out to the victim. They then falsely claim that they have a lien on the settlement and deserve to be paid.
These people may go so far as to have someone contact you who lies about being a lawyer. The fraudster may claim that they have your best interest at heart. They don’t. They may say that you have no choice but to pay. This isn’t true.
Laws are in place to prevent this kind of conduct. These laws penalize anyone that engages in criminal fraud.
For example, New York criminal law says that people commit the crime of larceny if they take another person’s money by means of false promises.
New York’s fraud law states:
“A person obtains property by false promise when, pursuant to a scheme to defraud, he obtains property of another by means of a representation, express or implied, that he or a third person will in the future engage in particular conduct, and when he does not intend to engage in such conduct or, as the case may be, does not believe that the third person intends to engage in such conduct.”
Attorneys Can Maximize Your Compensation
Subrogation can significantly reduce the amount of your overall settlement if you don’t have a skilled attorney in your corner. That’s why it’s always a good idea to consult an attorney before negotiating an injury settlement.
Even if you decided to handle your own claim, and were later surprised by a subrogation action, it’s not too late to seek legal advice. An attorney can often increase the portion of the injury payout that ends up in your pocket.
Gather all your accident documents to take to your initial consultation with the attorney.
Here are some essential questions to ask about subrogation:
- Is there a valid right to subrogation? Perhaps the most pressing question is whether a lienholder or insurance company has a right to subrogation. If there is no right to subrogation, then they are not entitled to any money. Further, the party could be guilty of fraud if they unlawfully demand the payment.
- Are there any limits on subrogation amounts? If someone does have a right to subrogation, state laws can limit what they receive. The Made Whole Doctrine may also help, depending on the facts of your case. These laws can minimize what the third party takes.
- Can the liens be negotiated? Experienced attorneys know who to call and what to say to resolve your liens for less, so you end up with a bigger portion of your settlement.
Most attorneys will offer free consultations for accident victims. Further, personal injury attorneys usually work on a contingency fee basis. This means they don’t get paid unless your claim settles or you win an award in court.
There’s no risk or obligation to find out what a good attorney can do for you.
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