What Is ‘Subrogation’ In A Civil Claim?

Summary: Subrogation is the substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor. For example, a surety who has paid a debt is, by subrogation, entitled to any security for the debt held by the creditor and the benefit of any judgment the creditor has against the debtor and may proceed against the debtor as the creditor would.

However, since the injuries are due to another’s negligence, your health insurance company should not financially suffer due to someone else’s fault. They would want to legally pursue the third party to recover the claim they paid for their policyholder. This process is commonly known as subrogation.

Understanding Subrogation

Subrogation refers to the act of one party standing in the place of the other. It defines the insurer’s rights before and after they have paid claims against their policy. For the injured victim, it is much easier to go through their own insurance policy for medical expenses rather than wait for a settlement for a claim filed against the third party’s insurance carrier.

When an innocent party, also known as a collateral source, files a claim against the third party for the damages, they are essentially stepping in the policyholder’s shoes. They, therefore, have similar rights and legal standing pertaining to recovering compensation as the policyholder. Suppose the third party is not responsible for the injuries of the policyholder. In that case, the injured victim has no legal standing, meaning the insurance company will not be able to pursue a lawsuit.

How Subrogation Works

In most cases, the injured victim’s insurance company pays for the client’s claim directly and then pursues a claim or a lawsuit against the third party’s insurance company. The policyholder receives the payment for their medical treatment, and the insurance company can now pursue a subrogation claim to recover compensation for their loss.

Subrogation claims are common in the insurance sector, especially among car insurance policies when the insurance carrier takes the financial burden of their policyholder for the injuries they sustained and then pursues repayment from the negligent party.

Example of Subrogation

Let’s look at examples of how subrogation works following an accident.

When a car accident occurs due to another’s negligence resulting in total damage to the vehicle, the insurance company would reimburse their policyholder under the policy terms and then seek legal action against the at-fault party. If the auto insurance carrier successfully recovers money from the third party, they must pay their policyholder back the deductible they paid.

Subrogation claim is not limited to auto insurance companies and their policyholders but also occurs in the healthcare sector. Suppose you suffer injuries in an accident that was not your fault, and your health insurance company pays $30,000 in losses against your insurance claim to cover the medical bills. In that case, they will pursue the at-fault party to recover the $30,000 they paid for your injuries.

What Is a Waiver of Subrogation

When you settle the claim with the at-fault party’s insurance company, they will ask you to sign a waiver of subrogation, which waives the right of your insurance company to seek compensation from the negligent third party. 

It legally protects the at-fault party’s insurance carrier from further civil action since they’ve already directly settled the case with the injured victim.

How Does Subrogation Work When the Fault Isn’t Clearly Defined?

If the fault is not clearly defined in an accident where you suffered injuries, you may want to file an insurance claim with your insurance company, pay the deductible, and receive payment for your medical treatment. Your insurance company would then take care of the rest.

Your insurer could pursue a subrogation claim for the entire amount or a portion. When they recover, you may receive full reimbursement on your deductible or part of it, depending on the state law.

How Long Does Subrogation Take?

Subrogation claims are similar to personal injury claims and can take weeks, months, or even years to resolve. It all depends on the complexity of the claim and the state laws.

Why Are Insurers Allowed to Make Subrogation Claims?

Insurance companies file subrogation claims to prevent you from recovering a windfall. If they did not have the legal right to subrogation, you would receive medical care without paying from your own pocket and then recover compensation for the same services. 

The subrogation process prevents this from happening, as you would technically make a double recovery while your insurer takes a loss.

What Types of Compensation Are Prone to Subrogation Claims?

Any expenses, medical bills, or repairs covered by your insurer create grounds for subrogation claims. 

These include expenses covered by an auto insurance company, health insurer, Med Pay insurance, PIP insurance, and uninsured or underinsured motorist coverage.

Are There Any Limits on Subrogation?

The two limitations that apply to how much money your insurer can recover through the subrogation process include the following:

• Made whole doctrine
• Common fund doctrine.

Besides the two doctrines, there may be other limitations to subrogation depending on the state law.

For example, in California, the state law limits recovery to the lesser of:

• Medical services cost
• Percentage of the total settlement or verdict.

An experienced personal injury lawyer can protect your settlement or verdict by ensuring these limitations.

Made Whole Doctrine

The doctrine limits your insurer’s subrogation rights when the negligent party cannot cover all the losses. You must be made whole when the negligent party does not have enough financial resources to cover your losses and reimburse your insurance company.

Suppose you’re in a car accident, and your insurer paid $50,000 for your medical bills. Your total damages are $150,000, but the at-fault party’s liability insurance coverage covers $75,000 in the settlement.

Since you’re not “made whole” by the $75,000, you may be able to invoke the made whole doctrine to protect that settlement against your insurer’s subrogation claim, limiting their subrogation rights. The meaning of “being made whole” may vary from one state to another, but the concept is pretty similar.

Most insurers include provisions in their insurance contract policies that mention that the made whole doctrine will not apply, and most states give preference to these provisions over the doctrine.

The Common Fund Doctrine

When your personal injury attorney works hard to secure a verdict or settlement against the negligent party, they will create a common fund from which they would pay off the expenses and insurer’s subrogation claim.

It would be unfair to your attorney if your insurer decided to demand its attorney fees since your attorney did all the hard work. The common fund doctrine protects your attorney from insurers demanding their attorney’s fees against your settlement.

Responding to a Subrogation Claim Brought Against You

The proper way to respond to a subrogation letter will depend on whether or not you have insurance.

When You Have Insurance

If you have insurance, your insurer will be responsible for handling the subrogation action brought against you. You must properly notify your insurer about the incident and any subrogation rights that are being claimed.

Whenever you’re involved in a car accident, it is your responsibility to notify your insurer regardless of who is at fault. If a subrogation claim is brought against you, your insurer should be aware of the accident, and if not, you would have to inform them about the accident and the subrogation claim as soon as possible.

When your insurance carrier knows about the accident and any subrogation claim against you, they will step in and handle the process on your behalf. Your insurer and the liable third-party insurer will discuss the matter and resolve it in-house, which means your involvement is fairly limited. 

Your insurer might ask you a bit more about the accident to determine the at-fault party. If not, they will pay your claim, and you will receive written notice.

When You Do Not Have Insurance

When you don’t have an insurance policy, and you receive a subrogation notice, things can get a bit tricky.

You would need to defend the claim yourself or let an attorney handle it for you. Subrogation is a billion-dollar cottage industry, and insurers are looking to get money regardless of whether or not you have an insurance policy. It helps them offer more competitive rates.

Many insurance companies outsource their subrogation claims to collections firms, which usually takes less than the full amount to settle the issue. When an insurer sues you for payment and receives a judgment against you, they still may not have a way to enforce that judgment.

Insurers will have the same collection options in litigation as any other judgment creditor. The claimants may get a lien against your property or try to garnish your bank accounts.

Learn More About Insurance Subrogation Today

Did you or a close loved one have a brush with an insurance company trying not to honor the made whole doctrine? Contact a talented, aggressive insurance law attorney at Ehline Law Firm Personal Injury Attorneys, APLC.

Together with our charismatic, compassionate legal team, our superior injury lawyers have won clients over $150 Million for serious injury victims throughout the entire State of California.

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Pursuing a personal injury claim or a lawsuit can help recover physical and emotional damage from the accident. We understand it can take time to recover claims, and you may not have the financial means to pay for your medical treatment, which is why our attorneys can help locate a medical lien to ensure you get the medical treatment without paying an upfront cost.

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