A subrogation claim is when your insurance company demands reimbursement (out of the money you receive in a personal injury case) for expenses that it covered (usually medical bills) while your case was pending.
It is as if the insurance company says to you:
“After your accident, we paid the medical bills to treat your injuries. Now you’ve received a settlement check that is meant to compensate you, at least in part, for your medical bills. Since we paid those bills, that compensation should go to us.”
If your case involves a subrogation claim by your insurer, having your own personal injury attorney will fight so that you are allotted as much money as possible in the subrogation process.
How does subrogation work?
Subrogation (“subro”) is a way to prevent you from receiving a windfall. It allows insurance companies who have covered your expenses that were related to the accident to recover reimbursement for those expenses from a subsequent personal injury claim.
In the aftermath of an accident, you will likely file an insurance claim. Your insurance coverage will step in to cover certain expenses. These are most often for things like your:
- medical expenses, and
- property damage.
If you were not at fault for the accident, you will then likely file a personal injury claim against the at-fault party’s insurance company (called the “third-party carrier” or TPC). If successful, this claim will lead to a settlement or a verdict that will compensate you for your legal damages.
That compensation, however, will also cover expenses that your insurer paid. Even though your insurer covered those expenses, you would be the one to receive compensation for them.
By having subrogation rights, insurance companies can stand in for you and receive that money, instead. Those rights to subrogation will generally be contractual rights that come from your insurance policy.
Your insurer does have to provide you with notice if it intends to file a subrogation claim to recoup what it paid for you. Then at that point, subrogation cases do not require you to take any action: Everything is handled between your insurance company and the at-fault party’s insurance company.
Then once the at-fault party pays up, the reimbursement amount that your insurer is seeking would go to them, and the remainder would go to you. Note that if you paid a deductible to your insurer, your insurer would use the subrogation process to try to recoup the deductible amount to pay you back.1
If your insurer paid for your medical expenses after an accident, your insurer can seek reimbursement from the at-fault party’s insurer.
Why are insurers allowed to make subrogation claims?
Insurance companies are allowed to invoke their legal right to subrogation to prevent you as the plaintiff from recovering a double recovery windfall. In short, subrogation prevents you from profiting from your accident.
If insurance companies were not allowed to make a subrogation claim, you would receive important services, such as medical care, without paying for it out of your own pocket. Then you would recover financial compensation for those same services.
You would receive the services, as if you paid for them, and then would receive compensation for them, even though you did not pay for them. The subrogation process prevents this from happening.2
What types of compensation are prone to subrogation claims?
Any expense that is covered by any of your insurers is susceptible to a subrogation claim. This includes your accident expenses that were covered by your:
- health insurance,
- medical payments (Med Pay) insurance,
- personal injury protection (PIP) insurance, and
- uninsured or underinsured motorist coverage.
If you were hurt on the job, you may also get medical and wage loss coverage through workers’ compensation. If you file a personal injury lawsuit and recover compensation for medical bills and lost wages, your workers’ comp insurer may have subrogation rights against your settlement or verdict.3
Are there any limits on subrogation?
Your insurance company, however, may be limited in the money that it can recover through a subrogation claim. Two important limitations are the:
Additionally, there may be other limitations to subrogation under state law. In California, for example, a state statute limits recovery through subrogation to the lesser of:
- the costs of medical services, or
- a percentage of the total settlement or verdict.4
A personal injury lawyer can ensure that these limitations protect your settlement or verdict.
The made whole doctrine
The made whole doctrine limits your insurance company’s subrogation rights when the at-fault party cannot cover all of the losses from the accident. When there are not enough funds to cover your losses and reimburse your insurer, you must be made whole, first.
For example: Gary is in a truck accident. His health insurance company provides $50,000 for his medical expenses. Gary’s total damages end up being $150,000. However, the responsible party’s liability insurance only covers $75,000 in the settlement. Because Gary is not “made whole” by the $75,000, he can invoke the doctrine to protect his settlement against his health insurer’s subrogation claim.
However, many insurance companies include provisions in their policies that specifically say that the made whole doctrine will not apply. Most states let these contractual provisions stand over the doctrine. A personal injury attorney may be able to challenge these provisions and use the made whole doctrine to protect your settlement award.5
The common fund doctrine
The common fund doctrine prevents your insurance company from making a subrogation claim against your settlement for their attorneys’ fees.
The common fund doctrine comes from the fact that your personal injury lawyers will have done all the work to secure the settlement or verdict against the at-fault party. The result is a common fund from which your compensation and your insurer’s subrogation must come from. It would be unfair to let the insurance company demand its attorneys’ fees from that fund.6
What is a waiver of subrogation?
Subrogation rights can be waived in 2 ways:
- by the insurer in the policy, or
- by you (the policyholder) in an agreement with the at-fault party.
Occasionally, insurers agree to waive their right to subrogation in their insurance policy. These waivers are quite rare, though, especially for auto insurance. They are generally only found in:
- construction contracts, and
- lease agreements.
Getting an insurer to waive its right of subrogation often requires paying a higher premium. Insurers demand a higher premium because it puts them more at risk of losing money.
More often, you and the at-fault party of the accident want to settle the case without involving your insurer. The at-fault party often wants this to avoid dealing with a subrogation demand.
The insurance company with the subrogation right often demands that you (as its policyholder) notify them of such agreements before they are made. They generally refuse to honor them. If you do make such an agreement with the at-fault party, your insurance carrier may file a legal action against you to recover its money.7
Legal References:
- See, for example, Nevada Revised Statute 17.275; Florida Statute 627.727; Erie Ins. Co. v George (Indiana, 1997) ; American Pioneer Life Ins. Co. v. Rogers (Arkansas, 1988) .
- See, for example, Blue Cross of Western New York v. Bukulmez (Colorado, 1987)
- See, for example, Delta Air Lines, Inc. v. Scholle (Colorado, 2021) 484 P.3d 695.
- California Civil Code 3040 CIV.
- See, for example, Johnson v. Roselle EZ Quick LLC (New Jersey, 2016) .
- See, for example, Lee v. State Farm Mut. Auto. Ins. Co. (, 1976) .
- See, for example, Am. Risk Funding Ins. Co. v. Lambert (Court of Appeals of Texas, Thirteenth District, Corpus Christi, 2001)
