Subrogation: When an Insurer Can Recover What It Paid from Your Settlement

The term originates from the Latin subrogare, meaning to put in the place of another. When an insurance company pays you for a loss (such as a car repair or a hospital bill), they acquire your legal right to sue the person who caused that loss. This prevents the at-fault party from escaping liability simply because you were responsible enough to carry insurance.

• Contractual Subrogation: 
• This is established by the specific language in your insurance policy. Most modern policies include a Right of Recovery clause that explicitly grants the insurer these rights.
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• Equitable Subrogation: 
• This is a court-created doctrine based on fairness. Even without a specific contract, a court may allow an insurer to seek insurance recovery to prevent unjust enrichment.

An insurer's right to recover usually ripens the moment the check is issued to the insured. However, in many jurisdictions, the insurer cannot actually take the money from your third-party settlement until you have been fully compensated for all your losses.

If you are hit by a negligent driver, your own insurance might pay for your medical bills or car repairs immediately to help you recover. Later, when you sue the at-fault driver, your insurer will file a notice of a subrogation claim to get a portion of your settlement to cover what they spent on your behalf.

Health insurers (including private carriers and government programs like Medicare) are among the most aggressive in pursuing reimbursement. If they pay for treatment related to an accident caused by someone else, they will place a lien or a subrogation interest on your personal injury case.

If you settle a case for $100,000, but your health insurance paid $30,000 in medical bills, they may demand that $30,000 be paid directly to them out of your settlement. This can be a shock to plaintiffs who expected to keep the full amount.

Subrogation demands are rarely final. Because the insurer often benefits from the work your lawyer did to secure the settlement, they may be willing to reduce their claim. We perform a forensic audit of the insurance payments to ensure the insurer isn't overcharging or seeking reimbursement for treatment unrelated to the accident.

This is the most powerful defense against a subrogation claim. It states that an insurer cannot recover any money until the insured has been made whole (meaning they have been fully compensated for their pain, suffering, lost wages, and all other damages). If your total damages were $200,000 but the at-fault party only had $50,000 in insurance, the insurer may be legally prohibited from taking any of that money.

In many commercial and construction contracts, parties agree to a waiver of subrogation. This means they agree that if a loss occurs, they will look only to their own insurance for recovery and won't allow their insurers to sue one another. This is a strategic tool used to prevent protracted litigation between business partners.

Before you sign a release or accept a check from an at-fault party, you must identify every insurer that has paid a cent on your behalf. This includes health insurance, auto insurance (PIP/MedPay), and even workers' compensation.

Do not sign a release before addressing subrogation. Once you sign a settlement release, your ability to challenge or reduce a subrogation claim may be permanently limited. You may accidentally waive defenses that could have saved you thousands of dollars.