How Insurance Subrogation Hurts Your Personal Injury Settlement

 

We Explain How to Protect Your Accident Settlement from the Insurer’s Attempt to Subrogate

 

The last few months have been challenging.

 

Doctors’ appointments. Surgery. Physical therapy. Pain. Worried about paying bills because you missed time from work.

 

And all because another driver was not paying attention and ran into you at the intersection.

 

Now, to make matters worse, your insurance company and health care plan have sent multiple letters from their subrogation departments. These subrogation letters state you must repay your insurance when you receive a settlement from the negligent driver. And threaten action if you do not.  

 

Is subrogation legal? Can the insurance company take back some of its money from your settlement?

 

These letters have caught you off guard. You do not understand how or why the insurer would want to make things more difficult when you were the one hurt.

 

Whatever you do – do not ignore the insurance subrogation letters. This article can help. 

 

Keep reading to learn how to respond to insurance subrogation attempts. There are laws that limit how much you must repay from the settlement of your injury case. 

 

If you have questions after reading this article or would like a free consultation with a top-rated car accident lawyer, call (804) 251-1620 or (757) 810-5614 or complete the form on this page. My firm helps injured workers and accident victims get – and keep – fair compensation for their injuries. And often, this means resolving subrogation demands.  

 

 

What is Subrogation?

 

Subrogation is a legal doctrine that allows the substitution of one party for another regarding a lawful claim, demand, or right so that the substitute party has the rights of the other.

 

Subrogation issues frequently arise in tort claims involving personal injury (including occupational injuries) because many of these claims involve insurance coverage. Indeed, insurers invoke subrogation principles to allow them to pay your covered losses while going after the third party responsible for your damages for reimbursement or payment.

 

With subrogation, the insurer gets to “stand in your shoes” to collect what it paid on your behalf from the negligent driver or at-fault party. Indeed, state law permits the insurer to file a lawsuit in its own name or in the insured’s name for subrogation actions where it does not seek reimbursement from the insured.

 

The terms reimbursement and subrogation are often used interchangeably, even in insurance contracts. But there is a subtle difference. 

  

Whereas subrogation allows the insured to “step in the shoes” of the insurer and advance potential claims, reimbursement means direct repayment to the insurer for payments made to or on the insured’s behalf.  

 

Insurers also use subrogation principles to recoup losses from auto accident and workers comp settlements. These efforts are the most problematic for accident victims relying on a settlement payment to make ends meet.

 

The Relationship between Indemnification and Subrogation

 

Subrogation claims might involve many legal terms you might not have heard of before or understand. 

 

Let us look at some concepts that can be confusing and how they work together. 

 

How to Indemnify

 

To indemnify is to pay for losses sustained or expenses incurred by a third party’s or one’s action. 

 

An example might help. 

 

You take your Toyota Camry to the local auto shop for repairs that take several days.

 

The auto shop offers a loaner vehicle so that you can get to and from work and pick up your kids from school. This is helpful, so you sign the auto shop’s loaner vehicle agreement.

 

The loaner agreement requires you to have insurance and includes an indemnity clause. Under this clause, you agree to protect the auto shop from losses or claims if you sustain or cause injuries or property damage to another while driving the loaner car. 

 

By including this clause, you indemnify the auto repair shop. Or, put another way, you are the indemnitor who guarantees indemnity for any losses or injuries that may occur when operating the vehicle. 

 

The next day you run into another vehicle stopped at a red light (you had been texting and not paying attention). Fortunately, you are not hurt. However, the other vehicle driver suffers a concussion and back injury.

 

A few weeks later, the accident victim sends a demand letter to the auto shop. He wants the mechanic to pay for medical bills, pain and suffering, and vehicle damage.

 

In response, the repair shop notifies the accident victim of the indemnity clause, bringing you into the dispute. Because you agreed to indemnify the auto shop, you must reimburse it if the accident victim obtains a judgment against the shop.

 

Insurance Policies are Contracts for Indemnity

 

When you buy an insurance policy, you purchase indemnity.

 

Under the policy, the insurance company indemnifies you (the policyholder) against loss for the incident covered in the contract.

 

Subrogation Follows Indemnification

 

Your insurance carrier can act on its subrogation rights when it indemnifies you.

 

For example, you are reading this article because you suffered injuries in a car crash or workplace accident.

 

After the crash, you submit your claim to your insurance carrier for indemnity. The insurer pays for medical bills and repairs your car.

 

Next, the insurance company will seek subrogation if someone else caused the accident. In doing so, it will put itself in your shoes and try to recover from the other person (or that person’s insurer).

 

In this situation, the insured who suffers losses is the subrogor. This is the legal term for the person who transfers their rights and claims to another.

 

On the other hand, the insurer is the subrogee because it takes another’s place to pursue a legal right.

 

Because these two insurance law doctrines are connected, many contracts place indemnity and subrogation clauses together.

 

What is the Subrogation Doctrine’s Purpose?

 

The subrogation doctrine has two functions.

 

First, it shifts losses to the party legally responsible for causing them.

 

Second, subrogation prevents windfalls (or “double recovery”) to the insured party who suffered losses. However, the collateral source rule prohibits a defendant from introducing evidence of these insurance payments at trial.

 

Why Did the Insurer Send a Subrogation Letter After My Motor Vehicle Accident or Work Injury?

 

Simple.

 

You received a letter from the insurer’s subrogation department because it wants to get some of its money back. It wants repayment when you settle your claim or get a judgment against the defendant.

 

Many insurers will send a boilerplate subrogation letter after receiving notice that you filed a workers comp claim or were hurt in a car crash. Even if the insurance company does not know any other facts.

 

What Subrogation Rights Does the Insurer Have?

 

The subrogated insurer has the same rights you would have if you brought the claim yourself. Therefore, it cannot seek more from the defendant than you would be entitled to.

 

As a result, the defendant may raise any defenses it would have against you against the insurer.

 

Depending on your claim’s facts, the insurer may be able to:

 

• Take legal action to recover the amount of your loss from the party who harmed you. This includes sending a demand letter to or filing a lawsuit (complaint) against the tortfeasor who injured you in the appropriate federal or state court.

 

• Take legal action to receive full or proportionate reimbursement of the benefits paid to you under the insurance policy. This is why it is important to hire an attorney before settling your case.

 

Sample Insurance Subrogation Clauses

 

Subrogation clauses are standard in many types of contracts and insurance policies, including:

 

• Auto insurance contracts

 

• Commercial motor vehicle policies

 

• Commercial real estate contracts

 

• Dental insurance

 

• Fire insurance contracts

 

• General liability insurance policies

 

• Health insurance contracts

 

• Homeowners’ insurance policies

 

• Long term disability insurance contracts. For example, the disability insurance carrier may seek repayment if you are approved for Social Security Disability benefits.

 

• Med Pay insurance contracts

 

• Pet insurance

 

• Professional liability insurance policies (medical malpractice, legal malpractice, directors’ and officers’ insurance, etc.)

 

• Renters’ insurance

 

• Residential real estate contracts

 

• Theft insurance

 

• Workers compensation insurance policies

 

However, life insurance contracts do not have subrogation clauses.

 

Below are three real-life examples of subrogation clauses from insurance contracts and workers comp settlement documents.

 

Auto Insurance Subrogation Clause

 

Here is a subrogation clause you may find in a Personal Automobile Insurance Policy:

 

OUR RIGHT TO RECOVER PAYMENT

 

A. If we make a payment under this policy and you have the right to recover damages from another, we are subrogated to that right. You must do:

 

1. 1. 1. Whatever is necessary to enable us to exercise our rights; and
      2. Nothing after loss to prejudice them.

 

However, our rights in this Paragraph (A.) do not apply under Part D, against any person using “your covered auto” with a reasonable belief that they are allowed to.

 

B. If we make a payment under this policy and you recover damages from another, you must:

 

1. 1. 1. Hold in trust for us the proceeds of the recovery; and
      2. Reimburse us to the extent of our payment.

 

Subrogation Clause in Workers Compensation Settlement Documents

 

Insurance defense firms representing Sedgwick, Amazon, Walmart, American Airlines, and other employers may use this subrogation clause in workers comp settlement papers:

 

The parties agree that the defendants retain all rights of subrogation. No such right is compromised, waived, or in any way affected by signing this document.

 

Further, the parties agree the gross amount of settlement of this claim must be included in calculating the defendants’ lien or subrogation interest on any third-party recovery the claimant might receive for injuries from this accident.

 

Subrogation Clause in Health Insurance Policies

 

Your health insurance policy might include a subrogation clause for negligence actions.

 

For example, I have reviewed health insurance policies that state:

 

If a third party causes personal injury and we pay for medical treatment related to that injury, then we reserve the right to recover the monies paid for those treatments from any monies paid by the third party or their insurance company to compensate you for the injury.

 

Similarly, your health insurance contract likely allows subrogation for workers compensation injuries or occupational diseases.

 

For example, I have reviewed medical insurance policies stating:

 

Your policy excludes coverage for injuries that are covered under workers compensation or similar laws (Longshore and Harbor Workers Compensation Act, FELA, FECA). If we pay benefits and later determine that these benefits were for treatment of a bodily injury or sickness arising from your employment for which coverage was available under workers compensation or similar law, we have the right to recover payments from you or others.

 

Can the Insurer File a Subrogation Claim against Me if I am the Insured, But My Negligence Caused the Loss?

 

No.

 

The courts have stated that a first-party insurer cannot recover from the insured when the insured’s negligence caused the harm.

 

Can I Purchase Insurance Without a Subrogation Clause?

 

Maybe. 

 

The insurance company may sell a policy that includes a waiver of subrogation clause. This waiver prevents the insurer from pursuing a claim against a third-party responsible for the loss. 

 

However, you will have to pay a higher insurance premium rate to get a policy with this provision. 

 

Do I Have to Cooperate with My Insurance Company’s Efforts to Subrogate?

 

Yes – if the policy contains a cooperation clause. Otherwise, you risk forfeiture of payment if you have not already received it.

 

Courts enforce contract language requiring policyholders to cooperate with their insurers to protect subrogation rights. Therefore, you cannot harm the insurer’s subrogation rights by acting without its permission after suffering a loss. Indeed, you may lose the right to collect under your policy if you do.

 

This insurance law doctrine protects the first-party insurer before it pays the claim. You can read more about the difference between first-party and third-party insurance here.

 

Subrogation and Settlement

 

This article has explained how the duty of cooperation protects insurers’ subrogation rights before paying a claim.

 

Next, we will discuss the insurer’s rights when it has made the payment on your behalf.

 

Disputes between your rights as the victim and the insurer to the proceeds of a settlement are common, particularly when there is not enough money to fully compensate you and the insurer. And successfully resolving them can have a tremendous impact on your future.

 

When there are Adequate Assets to Cover the Losses

 

One of three legal rules tend to govern situations where the accident victim has first-party insurance covering some or all the loss, and the tort defendant also has enough assets to pay the damages.

 

First, you might get to recover all your losses from both the tort defendant and the insurer. This rule applies when the insurer does not have subrogation rights in a state with a collateral source rule (insurance payments are not deducted from tort damages).

 

Second, the tort damages may be reduced by the insurance coverage available, with the tort defendant paying for the uninsured losses. This approach applies when the court does not have a collateral source rule.

 

Third, the defendant might have to pay for all the losses caused, with you reimbursing the insurer for payments made on your behalf. You would receive the amount left after deducting this payment. This rule applies when there is a collateral source rule and subrogation rights.

 

What are the Insurer’s Subrogation Rights if the Case Settles for an Amount that Does Not Cover All My Damages? Understanding the Made Whole Doctrine

 

The Made Whole Doctrine (also called the Made Whole Rule) is a common law principle that may protect your injury settlement from insurance subrogation. 

 

This rule states that an insurer cannot take money from a verdict or settlement to reimburse itself for payments made unless the policyholder (the injury victim) has been made whole by the at-fault party. It is an equitable defense to the subrogation or reimbursement rights of the insurer. And its rationale is that if one of the two parties must be left uncompensated, it should be the insurer and not the insured. 

 

Different states follow different applications of the Made Whole Rule.

 

For example, Virginia follows the Insured Whole rule. 

 

Under this approach, the parties divide the settlement proceeds as follows:

 

• The insured receives reimbursement for losses not covered by insurance, then

 

• The insurer receives the remaining balance, up to an amount sufficient to reimburse it fully, and then

 

• The insured gets any monies remaining. 

 

However, the federal and state legislatures have passed statutes strengthening or excluding subrogation rights in specific situations. These statutes displace the common law or contract language if following these authorities would lead to a different outcome.

 

Further, the insurance contract itself might limit the application of the Made Whole Rule.

 

Virginia Subrogation Laws

 

Virginia has several subrogation statutes that may apply to your injury or workers comp case.

 

Virginia Anti-Subrogation Statute for Health Insurance Payments (Code Section 38.2-3405)

 

Virginia’s anti-subrogation rule states that a health insurance company may not seek indemnification from its insured. Indeed, no insurance contract or health services plan that provides hospital, medical, surgical, and related benefits can include a subrogation clause against any person’s right to recovery for personal injuries from a third person. 

 

Further, this anti-subrogation statute prevents health insurance contracts from asking you to sign an agreement to repay the insurer if you recover proceeds from another source. 

 

But there are exceptions.

 

For example, the anti-subrogation rule does not apply to out-of-state health insurance contracts. Therefore, a subrogation clause in your health care plan might be enforceable if it is an out-of-state policy. 

 

In addition, health insurance companies can seek repayment for benefits paid or payable under workers compensation laws if the policy excludes work-related injuries and illnesses from coverage.  

 

However, the insurance company cannot exclude coverage or exercise its subrogation rights for any medical condition if the Workers Compensation Commission enters an award denying compensation benefits relating to that conditoin.

 

For example, you hurt your shoulder at work. But the employer denies your claim, alleging your need for medical care and disability are related to pre-existing arthritis and overuse.

 

Instead of waiting for the workers comp hearing, you use private health insurance to receive treatment. This insurance pays for office visits, diagnostic imaging, and surgery.

 

Before the hearing, the employer offers a reasonable amount to settle your workers comp claim. Naturally, you accept the offer, not wanting to risk an adverse ruling at trial.

 

A few weeks later, you receive a subrogation letter from the health insurer. It asks about the status of your workers comp claim and states you must reimburse it for medical expenses paid from the settlement.

 

If your settlement papers include language that triggers the anti-subrogation statute, you might be able to avoid repaying any monies to the private insurer.

 

Virginia Code Section 38.2-2209. Anti-Subrogation Statute for Medical Payments Insurance Benefits (Med Pay)

 

Your auto insurance policy may include medical payments insurance benefits (Med Pay).

 

These benefits cover health care expenses regardless of fault.

 

Under Code Section 38.2-2209, the Med Pay insurer does not have subrogation rights against proceeds paid by a third party.

 

Virginia Workers Comp and Subrogation

 

Virginia Code Section 65.2-309 states that an employer has a lien against any verdict or settlement you receive in a third-party claim. Further, the employer is subrogated to the right to sue the third party for liability in civil court. This means the employer can file a lawsuit against the third party in its name or yours.

 

If the employer collects more than it paid you in the subrogation action, you will receive the excess amount minus a proportionate share of the employer’s attorney fees and litigation expenses.

 

Similarly, the employer has subrogation rights against proceeds recovered under an uninsured/underinsured motorist policy. But only if the employer paid the premiums for that policy.

 

Finally, you must obtain the employer’s permission before settling a third-party action if you have submitted a claim for or received workers comp benefits (lifetime medical, PPD, temporary total, etc.).

 

Failure to do so may result in forfeiture of future workers comp benefits, even if you recover enough to pay the lien in full through the personal injury claim. This mistake can be financially devastating – especially if you had a severe spinal cord (resulting in paralysis or requiring a fusion of the spine) or traumatic brain injury requiring ongoing care.

 

Learn more about workers comp liens here.

 

Consent to Settlement Clauses in Uninsured/Underinsured Motorist Insurance Policies

 

An insurer paying a claim under uninsured motorist or underinsured motorist policies has subrogation rights.

 

Further, the Virginia Supreme Court has held that an uninsured motorist carrier may include a policy provision requiring the insured to obtain its consent to settle with jointly liable parties.

 

Professional Liability

 

When an insurer makes a payment on behalf of its insured under the liability policy, the insurer has all rights of recovery against other negligent parties.

 

For example, a hospital’s insurer may pay a claim and then enforce subrogation rights against the orthopedic surgeon at fault.

 

Federal Subrogation Statutes that Preempt State Law

 

When state and federal law conflict on an issue, federal law applies under the Supremacy Clause of the U.S. Constitution.

 

Therefore, federal law preempts Virginia’s anti-subrogation statute in certain situations, such as: 

 

• Self-Funded ERISA (Employees Retirement Income Security Act) Plans: ERISA gives subrogation rights to health plans. But only if your employer self-funds the plan. Otherwise, the ERISA plan has no right to reimbursement of paid medical expenses from your personal injury or workers comp proceeds. 

 

• FMCRA (Federal Medical Care Recovery Act): Active-duty military, veterans, and their spouses or dependents may have medical coverage through the Veterans Administration (VA) or Tricare. The FMCRA allows the government to recover the costs of medical care it provides to you. Usually, you can negotiate a reduction with the VA or Tricare Subrogation Department directly. 

 

• Medicaid: The Department of Medical Assistance Services (DMAS) has a right of reimbursement for medical expenses paid on your behalf. In my experience, Medicaid will reduce the amount sought if you ask. Further, there is a pending U.S. Supreme Court to determine Medicaid’s subrogation rights.

 

• Medicare: Medicare has a right to reimbursement for conditional payments made to health care providers before you settle your claim, as well as payments after you receive settlement monies. Read this article for more on the Medicare Set Aside (MSA) process. 

 

How Can a Personal Injury Lawyer Help if the Insurer Seeks to Subrogate from the Settlement Proceeds?

 

We have one goal for our injury clients – get as much money as possible. 

 

Often, achieving this goal means negotiating with the insurance company or health insurer to reduce a subrogation claim so that settlement makes sense for you. 

 

We can explain all laws relating to subrogation. Then, we can use the facts, case law, statutes, and current settlement offers to develop a strategy that persuades the insurer to waive or reduce its subrogation lien. 

 

In many cases, the insurer has accepted cents on the dollars for its subrogation action arising from an auto accident or job-related injury.

 

Hire a Lawyer to Help You Get More Money for Your Injuries by Fighting the Subrogation Action

 

Negotiating with insurers is often frustrating.

 

Indeed, you may feel like you are going nowhere, and most of the offered settlement will go to others. But we can help.

 

If the insurance company has threatened a subrogation claim that will take money out of your pocket even though you were hurt, call (804) 251-1620, email cpollardjba@gmail.com, or complete our online form. You have a lot at stake, and our injury law firm can help.