What is “Subrogation” and What Role Can it Play in my Personal Injury Case?

“Subrogation” is a legal principle that can effect the bottom line in your personal injury case.

Subrogation refers to the right of one party to bring suit in the name of, or in the place of, another.  The purpose of such a right is for someone else to collect money from your personal injury case when benefits have been paid to the injured person.  

The most common situation where subrogation arises is with health insurance.  For example, let’s assume you are injured in a car wreck that was someone else’s fault and your health insurance company paid your emergency room bill.  

If that happens, then your health insurance company would have a right to subrogate against the other driver to recover the amount that it paid to the hospital. That means your health insurance company can actually pursue their own claim or lawsuit against the at-fault party or their insurance company for reimbursement of the bills they paid.

This is not just limited to health insurance.  You also see the concept of subrogation quite often in the context of car accidents.  For instance, if your auto insurance paid for the damage to your car after an accident, then they can seek reimbursement from the responsible party for the damage it paid.

How Does Subrogation Work?

Almost every insurance policy has some sort of subrogation clause.  Subrogation allows the paying party to step into the shoes of the injured person and get reimbursed from the responsible party.  So, just like you can sue for your damages, your health insurance company can subrogate for the benefits they paid.  

They can do anything that you can legally do to get paid back.   The insurance company can pursue their own claim and even file a lawsuit against the responsible party. If they choose to file a lawsuit, the suit can be brought in the insurance company’s name or in your name.

You also have the contractual duty to cooperate with your insurance company’s efforts to seek subrogation.  This is because your duty to cooperate was a condition of the benefits being paid on your behalf.  If you don’t cooperate, then you could be held responsible for the amounts paid.

How Does Subrogation Affect Your Personal Injury Case?

If insurance benefits were paid on your behalf, then you must account for subrogation in the event you collect any money on your case. Taking the example above, if you settle your car accident case and sign a release, then your health insurance company might not be able to pursue their rights against the responsible party.  Likewise, the health insurance company will come after your settlement proceeds to get reimbursed. That is because, by settling and releasing the at-fault party, you may have legally assumed the responsibility for paying the subrogation claim out of your settlement proceeds.

Some Subrogation Claims are Limited.

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Texas has enacted statutory provisions in an effort to better define the rights of all the parties in an injury case involving a subrogation claim.

Texas Civil Practice and Remedies Code, Chapter 140, was enacted in 2013 to define and limit the rights of certain subrogation claims.  Prior to the statute, there was confusion on the law as to how much actually had to be paid back out of a settlement. 

And health insurance companies were taking full advantage by trying to collect more than they may have been entitled to collect.  Was the injured party required to pay back 100% of the benefits paid?  What about the costs of attorneys fees paid by the injured person to obtain the settlement? 

These were just some of the questions that the Texas Legislature tried to address.

Attorneys Fees.

The “common funds doctrine” refers to the concept that, if another party claims a right is a certain funds, then it should also incur a proportionate amount of the costs, expenses, and attorneys fees paid to recovery the funds. 

Here is an example of how it works.  Let’s assume that the health insurance company demands to get paid 100% of its subrogation amount from a settlement:

  • Settlement Amount:  $90,000.00
  • Attorney’s Fees:  $30,000.00
  • Health Insurance Subrogation:  $45,000.00
  • Net to Client:  $15,000.00

If the health insurance gets paid back 100%, then the client will only net $15,000.00, out of the $90,000.00, settlement.  

The Chapter 140 addressed this issue and codified the “common funds doctrine” in this instance.  Under this concept, the health insurance company would have to share in the attorneys fees regardless of what its policy states. 

So, if the client paid approximately 1/3 as attorney fees, then the health insurance company should also pay 1/3 of it’s subrogation interest.  Therefore, the settlement would look more like this:

  • Settlement Amount:  $90,000.00
  • Attorney’s Fees:  $30,000.00
  • Health Insurance Subrogation:  $45,000.00 reduced to $30,000.00 ($45,000.00, less $15,000.00, representing 1/3 for attorney’s fees).
  • Net to Client:  $30,000.00

Now, as you can see, the client ends up netting $30,000.00, because the health insurance company was forced to reduced its subrogation claim due to the attorney’s fees incurred by the client.

Exceptions to Chapter 140.

Unfortunately, Chapter 140 does not apply to many types of health insurance policies such as plans governed by the Employee Retirement Income Security Act of 1974 (ERISA); workers compensation plans, Medicare, and Medicaid.

Many subrogation claims are negotiable depending on your injury case. A personal injury attorney who is experienced in these types of claims can help you maximize your settlement.

There are many other exceptions and special rules that may apply to any given situation. For instance, if your auto insurance company paid Personal Injury Protection (PIP) benefits, Texas law expressly prohibits any right of subrogation for PIP.  On the other hand, if your auto insurance company paid Med-Pay benefits, then there be a right of subrogation.

Nevertheless, many of these subrogation claims are subject to negotiations.  Sometimes they can be negotiated quite drastically depending on the circumstances of each case.  That is because no one gets paid unless the injured client is willing to sign off on the settlement.  If the client is not willing to settle, then no one will collect anything.

Related Articles:

The Difference Between PIP and Med-Pay Coverage

My Doctor Won’t See Me After My Car Accident

Using Health Insurance in Your Personal Injury Case

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Issues of subrogation can become complicated and riddled with many surprises: both good and bad. That is because the rules are constantly evolving and changing in this area of the law.

This article is only intended to explain the general principals of subrogation.  Likewise, you should retain an attorney experienced in handling personal injury cases.  Otherwise, you could find yourself in a position you never bargained for.

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