In almost every insurance policy, whether that policy insures an automobile, home, or health of an individual or family, is language of subrogation.
What is the Definition of Subrogation?
Legally, subrogation occurs when "an insurance company which pays its insured client for injuries and losses then sues the party which the injured person contends caused the damages to him/her." In other words, most insurance companies have the legal right to hold third party's accountable for their insured.
What are My Subrogation Rights?
When a claim settlement or a judgment after a trial is entered, the insurance company shows up like the lazy farm animals in the childhood story of “The Little Red Hen”, with its hand out looking to be reimbursed, even though the insurance company never helped in the process of breaking the bread.
A lot of our clients are not even aware of the right of subrogation. In their surprise, they rightly argue that they and other customers of the insurance company pay those company premiums to insure the risk that at some point in time the insurance company may need to pay medical bills. Why should the company be entitled to recover reimbursement for payment of those bills when they were paid premiums to cover the risk involved already? This is a valid ethical and policy question, but the question has been answered in the State of Illinois, and in most other states in the union, against the policyholder and in favor of the insurance company.
Negotiation with Insurance Companies
Unfortunately, statutes and the case law support the contractual language within the insurance policy, so that at the end of the case, when the bread comes out of the oven, we have to deal with an insurance company that never helped us in baking the bread. In many instances, as we negotiate with the insurance company who paid the medical bills, we can get them to agree to a reduced amount for repayment of their subrogation claim.
- In some instances, when we are dealing with the medical payments provision under an automobile insurance policy, our right to a reduction is part of a recognized legal doctrine known as the “common fund doctrine”. This legal doctrine provides that we can reduce the claim for reimbursement by one third, in that our client is paying us on a one third contingency fee.
- In other instances, for instance, where the medical payments were made on a group health insurance policy that falls under ERISA, a federal act, the common fund doctrine may not apply. In those instances, the group health insurance company may validly claim that they’re entitled to 100% reimbursement for the medical expenses they paid. Sometimes, however, they will agree to a reduction simply to help the foster settlement of the claim.
The right of subrogation, or reimbursement for payment of medical expenses on settlement or payment of a judgment against the responsible party, is an important consideration for consumers to be aware of. Whatever our personal feelings on the fairness of this contractual right to recover, it is, unfortunately, something we deal with in almost every injury case.