You were seriously injured in an accident caused by someone else’s negligence. You needed immediate and extensive medical treatment. The cost of this medical treatment was paid by your health insurance company.
Now that your case has been settled, you may be startled to find that your insurance company is claiming that a portion of your settlement payment is rightfully theirs. After all, you paid them monthly premiums so that they would do just that. Why should they be entitled to a part of your settlement? Isn’t your insurance company required to pay for your medical treatment?
The answer to that question is yes. Your insurance company was required to pay your medical bills according to the terms of your policy. However, once they have done so and you subsequently receive money for your injuries, they are entitled to try to obtain reimbursement for the payments that they made on your behalf. In many cases, an insurer will have a lien, or what is known as a subrogation interest, on the damages awarded in a lawsuit. This means that, depending on the size of the settlement, the insurance company will be reimbursed first for all or a portion of the medical bills that it paid. You will then receive your portion of the settlement.
The idea behind subrogation is that any insurance company that has to pay for the medical treatment of injuries caused by someone else’s negligence has a right to be paid back. In essence, the law looks at the insurance company as another party who was damaged because of someone else’s lack of care. If you don’t sue, they have the right to “step into your shoes” and bring suit against the negligent party themselves in order to recover what they paid on your behalf. However, if you do decide to sue the person who injured you and that suit is ultimately successful, the insurance company doesn’t lose its rights as an injured party. They can still claim that a portion of the proceeds of the lawsuit that equals their payments to you is rightfully theirs.
How does this happen? In many cases, people voluntarily give the insurer the right to subrogate when they buy their policy. No one talks about it but the subrogation clause is right there in the policy’s small print. It’s perfectly legal and to most people, perfectly unknown. The chances are if you went and read your insurance policy right now, you’d discover that there is a subrogation clause.
It’s helpful to think about subrogation in this way - but for the negligent person’s actions, the insurance company would never have had to make any payments on your behalf. However, because of that person’s actions, the insurance company honored its contract with you. They are now able to protect their interests by claiming a fair portion of the settlement or judgment. If they weren’t able to protect their interests, you would be unfairly rewarded at their expense. In essence, without subrogation, you would be compensated twice for the medical bills that arose out of your accident. Once when the insurance company paid them for you and once again when you collected your settlement or judgment.
After all, you pay a health insurer for peace of mind. Once you have insurance, you can rest assured knowing that the insurer is responsible for the payment of your medical bills according to the terms of the policy that you purchased. It doesn’t matter if you injured yourself or someone else negligently injured you. Either way, the insurer is required to pay. It stands to reason then, if someone else is legally liable for the costs of your injuries, they are also legally liable to anyone who you contracted with to pay for the costs of your injuries. Just as your insurer is required to honor their contract with you, you are required to repay your insurer if you are compensated by a third party for medical bills that they paid on your behalf.
In general, an insurer’s right to subrogation is not absolute. In cases where the negligent party is underinsured and there is not enough money to cover all of an injured party’s damages, the insurer is not entitled to a full recovery of the money that it has paid out on an insured’s behalf. In other words, if there is not sufficient money to make the injured party whole, the subrogation rights of the insurer are not absolute.
It is important to keep in mind that even when an insurer has enforceable subrogation rights, you will only have to pay back the actual dollar amount that your insurance company paid. In some cases, a medical provider will charge a higher price for services and then accept a lesser amount from an insurance company for those same services. For example, your doctor may order an MRI following an accident so that he or she is able to make a full and complete diagnosis of your condition. The medical provider may bill you $2500 for the MRI. However, the medical provider may accept $1800 dollars from your insurer as full and complete payment for the procedure. That means that when your insurer exercises their right of subrogation over your claim, you will only have to pay them $1800 - the amount of money the medical provider accepted for the MRI. The remaining $700 of the supposed $2500 MRI bill is rightfully yours.
Subrogation is a complex issue in any personal injury case. It is an area of the law that many attorneys find complex and rapidly changing. If you’ve been in an accident and have been seriously injured, your settlement or judgment is the one thing that will make you whole and get your life back on track. You don’t want to give any portion of your settlement to your insurer unnecessarily. Discuss your case with a personal injury attorney who is experienced in subrogation issues. It could mean the difference between a full recovery and something less.