Subrogation is a legal device whereby an insurer "stands in the shoes" of an insured person for purposes of recovering personal injury damages or health care costs. Typically, a subrogation claim arises when a third party injures an insured person. The insurer pays for treatment of the injuries and then attempts to collect payment for those damages from the third party.
A subrogation obligation may arise by contract or pursuant to equity principles. Each state has its own specific laws regarding the subrogation process and the settlement process for third party lawsuits.
When Does a Subrogation Claim Arise?
A subrogation claim or action may arise when a person is injured through no fault of his own. The insurance company pays for the insured's injuries, such as medical bills or automobile repair bills. The insurance company, also known as the "collateral source," initiates a subrogation claim or action against the at-fault third party to recover the funds it has paid for its insured. A subrogation claim may seek reimbursement for any deductibles that the insured has paid.
Collateral sources are not limited to liability insurance companies. A government agency that provides federal workers' compensation benefits, Medicare, veteran's benefits, or medical assistance benefits may also file subrogation claims.
What Happens During a Subrogation Claim?
An insurance company or government agency files a subrogation claim with the third party's insurer or attempts to collect from the third party directly (if uninsured). If a negotiated payment cannot be reached, the insurance company or government agency may initiate suit against the third party or his insurer to obtain a court judgment on the subrogation claim.
Collateral Source's Share in Recovery
If an injured person recovers damages independently against a third party, an insurer or government agency may share in that recovery. This prevents the insured person from enjoying double-recovery or a financial windfall.
When an Accident Victim is Partially at Fault
If an accident victim is partially at fault, the insurer of the third party may present a subrogation claim to the victim or his insurer. A party is responsible to the extent his negligence caused or contributed to an accident. The laws of the state in which the accident occurred control how fault is calculated and apportioned.
Settlement of Third Party Suits
Another issue that arises with subrogation claims is the settlement of third party suits. The law may allow an injured person and the collateral source to separately settle their claims against the responsible third party. However, settlement of a third party suit may relieve an insurance company from the responsibility of providing continued benefits to the insured. Whether the provider must continue the payment of benefits often depends on whether the settling party has provided adequate notice of the settlement to the non-settling party.
When a person is injured and an insurance provider or government agency pays for his damages or medical injuries, the provider may seek repayment from the at-fault party. This is called subrogation. Subrogation derives from equity or contract principles. The at-fault party is required to pay that portion of damages directly attributable to his negligence.
If an accident victim is partially at fault, the third party and/or his insurer may submit a subrogation claim against the victim and his insurer. If the accident victim independently collects damages from the third party, the victim's insurer may share in those damages.