A subrogation in Personal Injury Claims arises when your insurer seeks to be reimbursed for costs it covered, such as medical bills, during the pendency of your personal injury lawsuit, from the settlement you receive.
This occurs as though the insurer is communicating to you:
Should a subrogation claim be part of your case, employing a personal injury lawyer ensures that the negotiation process allocates you the maximum possible share of the settlement.
How does submission work here?
Subrogation, often referred to as “subro,” acts to prevent you from benefiting unfairly by allowing insurance companies to be reimbursed for accident-related expenses they covered when you later receive a personal injury settlement.
After an accident, your insurance typically covers initial costs such as:
- Medical bills
- Property damage
Should the accident not be your fault, a claim against the at-fault party’s insurer (the “third-party carrier” or TPC) may follow, potentially resulting in a settlement or verdict reimbursing your legal damages, including those expenses already paid by your insurer.
Through subrogation rights, your insurance can claim this compensation instead. These rights, usually based on your policy agreement, permit your insurer to pursue reimbursement directly from the TPC.
Notice of an intent to seek subrogation must be provided by your insurer, requiring no further action on your part as the process unfolds between the insurers.
Upon settlement from the at-fault party, the reimbursement sought by your insurer is deducted, with any excess returned to you. Notably, the subrogation process also aims to recover any deductible you paid, reimbursing you for that expense.
Why are insurers allowed to make subrogation claims?
Insurers are granted the right to subrogation to ensure that plaintiffs do not benefit from double recovery, effectively preventing them from gaining financially from their accidents.
Without the ability to file subrogation claims, plaintiffs would benefit from essential services like medical treatment without any personal expense, later receiving financial compensation for these same services.
Thus, through subrogation, the potential for receiving both the services as if they were personally paid for, and then compensation for these expenses not actually borne by them, is eliminated. This mechanism ensures that unjust enrichment does not occur.
What are the types of compensation?
Expenses covered by any form of your insurance may be subject to subrogation claims, encompassing accident-related costs paid for by:
- Health insurance,
- Medical payments (Med Pay) insurance,
- Personal injury protection (PIP) insurance,
- Uninsured or underinsured motorist coverage.
In instances of workplace injuries, workers’ compensation provides medical and wage loss benefits. Should you pursue a personal injury lawsuit and secure compensation for medical expenses and lost wages, the workers’ compensation insurer could exercise subrogation rights to recover from your settlement or judgment.
Are there any limits on subrogation?
The amount an insurance company can reclaim through subrogation may face restrictions. Two critical constraints include the:
- made whole doctrine, and
- common fund doctrine.
State-specific laws can further restrict subrogation rights. For instance, in California, legislation caps the amount recoverable via subrogation to either:
- the expenses for medical services, or
- a certain percentage of the overall settlement or verdict.
Engaging a personal injury attorney can help ensure that your settlement or verdict benefits from these restrictions.
The made whole doctrine
The made whole doctrine curtails the subrogation rights of your insurance company in scenarios where the responsible party’s funds are insufficient to fully compensate for the accident’s losses. If the available funds cannot simultaneously satisfy your losses and repay your insurer, your full compensation takes precedence.
Despite this, numerous insurers incorporate clauses within their policies explicitly exempting the application of the made whole doctrine. A majority of states uphold these policy stipulations over the doctrine itself. Nonetheless, a skilled personal injury lawyer might contest these policy exceptions, leveraging the made whole doctrine to safeguard your settlement proceeds.
The common fund doctrine
The common fund doctrine bars your insurance company from demanding a portion of your settlement to cover their legal fees through a subrogation claim.
This doctrine is grounded in the principle that your personal injury attorney undertook the effort to secure the settlement or judgment against the party at fault. Consequently, a collective pool is created, from which both your compensation and the insurance company’s subrogation reimbursement are drawn. Allowing the insurance company to extract its legal fees from this shared fund would be inequitable.
What is a waiver of subrogation?
Two methods exist for waiving subrogation rights:
- Within the insurance policy by the insurer, or
- Through an agreement between you (the policyholder) and the at-fault party.
Waivers of subrogation by insurers are infrequent, particularly in auto insurance, often appearing instead in:
- Construction contracts, and
- Lease agreements.
To persuade an insurer to relinquish subrogation rights, typically a higher premium is charged. The increased premium compensates for the insurer’s heightened risk of financial loss.
Alternatively, settlements between you and the at-fault party may be preferred to bypass insurer involvement, primarily to evade subrogation claims from the insurer.
Insurance companies, holding subrogation rights, usually mandate prior notification of such settlements by their policyholders and are prone to rejecting these agreements. Should an agreement be reached with the at-fault party without the insurer’s consent, the insurance provider may initiate legal proceedings against you to reclaim its expenditures.
