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Insurance Law: What is a Subrogation Action?

What is Subrigation

Have you ever been accidentally injured, visited the emergency room for treatment, and then submitted the bill to your health insurer for payment? Your health insurance company 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 and whether a third party might be responsible.

The insurer is probably following the terms of your insurance policy and trying to determine if someone (other than the injured person or policyholder) is fully or partially to blame for the injuries that led to the insurance claim. 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. This 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 may hear the term "subrogation." Subrogation means one person or party is entitled to make a demand 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.

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 legal rights than those possessed by the person who was entitled to receive the initial benefits. In fact, the collateral source's rights only extend to what the collateral source has paid. Moreover, any legal defenses that could be used against the injured party may also be asserted against the collateral source provider.

What Is a Collateral Source?

Generally, a "collateral source" is a private entity, usually a private insurer, or a government agency, which makes payments for 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 in medical bills to the healthcare provider that treated an injured party, that party should not later be allowed to also collect for those medical bills 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 as reimbursement for the medical bills that the insurer paid, collecting either directly from the at-fault party or from the payments that the at-fault party has made to 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. Government benefit programs often include statutory provisions (provisions 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 subrogation rights and diligently pursue them.

Workers' Comp Subrogation Example

For illustration purposes, when an employee is injured at work, often 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 the liable third party.

While the presence of a third party may not change the fact that workers' compensation will pay benefits to the employee for the employee's work-related losses, subrogation allows the workers' compensation provider to either step into the employee's place or participate with the employee in a lawsuit against the liable 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.

Subrogation and Settlement

Issues associated with subrogation can become complicated 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, it is more common for the injured party to reach one global settlement with the at-fault party. If the injured party is unaware of the subrogation rights, they may be dismayed to learn that they will have to pay the subrogation, rather than keeping it for themselves as compensation for their damages. In this event, the settlement may not be as favorable as they thought when they decided to accept it.

A settlement may also 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 of the intended settlement to the party entitled to subrogation.

State and Federal Subrogation Laws

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. However, if your health insurance is provided by your employer as part of an Employee Retirement Income Security Act (ERISA) plan, then your employer's right to subrogation is controlled by federal law, not state law.

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 subrogation law.

Confused About Subrogation Actions? Reach Out to an Attorney Today

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. Contact a local personal injury law attorney today.

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