What is Subrogation and How Does it Work?

Subrogation is essentially a right to reimbursement. In a personal injury case, subrogation allows an insurance company to recover the money that it paid on your behalf for medical expenses or other insurance benefits. Technically speaking, subrogation is actually the legal substitution of an insurance company for the injured victim, entitling the insurance company to make the legal claims of the injured victim. Put another way, an insurance company that pays benefits on behalf of an injured person steps into the shoes of the injured person and has the right to assert the injured person's claims against the negligent party.
Sometimes the insurance company will assert its claim directly against the person who caused your injuries (that person is called the tortfeasor). Other times, the insurance company will notify you or your attorney that it has a right to subrogation and that it expects to be repaid out of any money recovered in your case. Correctly handling subrogation claims is critical. Failing to properly resolve a subrogation claim leaves you vulnerable to lawsuits and judgments by the insurance company.
Types of SubrogationDepending on the type of coverage, insurers have various rights of subrogation. For example, in Colorado, all Workers' Compensation insurance companies have a legal right to subrogation granted by Colorado Revised Statutes, section 8-41-203. Health and disability insurance companies get their right to subrogation by contract-i.e. insurers include language in the policy they provide that states they have a right to subrogation. Not every insurer has subrogation rights though. Typically, if an insurance company does not have a statutory right to subrogation and the insurance policy does not say they have a right to subrogation, then you do not need to repay it. But determining whether an insurance company truly has a valid subrogation claim can be difficult. It involves reading lengthy documents filled with legalese. It's important to know where to look and what to look for. Even if a document claims the right to subrogation, that claim may not be enforceable.
Limitations on the Right of SubrogationSometimes victims believe it does not make sense to pursue a claim because they assume that all of the recovery will go to repay the insurance companies. However, this is often not the case. The only way to clearly evaluate whether a claim is worth pursuing is to consult an experienced lawyer with thorough knowledge of insurance law and subrogation rights. Not all types of recovery are subject to claims of subrogation. Even when certain types of recovery are subject to claims of subrogation, other laws limit the insurance companies' rights to be fully repaid.
Colorado law provides two helpful rules that often apply to reduce the amount subject to subrogation. The first is called the Made Whole Rule. This rule applies to private health insurance companies governed by Colorado law. In cases where it applies, the Made Whole Rule states that if the victim did not recover the full amount of her damages, there exists a rebuttable presumption that the insurance company may not be entitled to any recovery. It is important to note that the injured party must take very specific steps in order to void an insurer's subrogation claim.
The second helpful rule is the Common Fund Doctrine. This rule requires that insurers reduce their liens proportionately to pay a portion of your attorney's fees and case costs. After all, if you hire the attorney who does all of the work to obtain a recovery that gets split between you and the insurance companies, how is it fair that you pay the entire attorney's fee and costs out of your portion and the insurance company gets its full portion? The Common Fund Doctrine applies to make sure that the insurance company does not get a free ride at your expense and makes them pay their fair share of your attorney's fees and case costs.
In summary, subrogation presents many difficult issues. No one simple rule exists for all subrogation cases. The rights of the insurer vary depending on the type of case, who has the right to subrogation and the source of the recovery.
It is impossible to cover every possible example in this blog post. Please be aware that many pitfalls and a few lifelines exist in the complicated world of subrogation. Understanding which limitations apply and how to assert your rights can make a tremendous difference to your net recovery. Our attorneys have successfully resolved hundreds of subrogation issues favorably for our clients. We will utilize our experience and expertise to insure you receive the maximum recovery possible.
Contact our office at www.vanmeverenlaw.com or 1-866-649-6775 for a free consultation.

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