Subrogation can frustrate both attorneys and clients.
Generally, when an insurance company or other entity pays medical expenses on behalf of an injured person, the company or entity has a claim to be reimbursed for the payments they made if the injured party makes a recovery against a defendant.
Personal Injury Subrogation Primer
One of the most complicated and frustrating problems facing personal injury attorneys and our clients is subrogation. This is particularly true for those of us who practice in Texas, where courts have established more stringent rules for plaintiffs. It’s not uncommon for personal injury attorneys to spend more time trying to resolve the subrogation interest than resolving the underlying case.
What is Subrogation?
Generally, when an insurance company or other entity pays medical expenses on behalf of an injured person, the company or entity has a claim to be reimbursed for the payments they made if the injured party makes a recovery against a defendant. This interest may arise in almost any type of personal injury claim. We have fought substantial subrogation battles in car wreck claims, in on-the-job injury claims, and in medical malpractice claims. Some of these battles are resolved quickly, and some have raged on for years.
A subrogation claim can take many forms. Some subrogation interests are statutory. On the federal government level, a statute requires a personal injury plaintiff to reimburse Medicare for payments they make as a result of the defendant’s negligence. Also on the federal level, a personal injury plaintiff is required to compensate the Veteran’s Administration for any care they provide that was the result of a third party’s conduct.
On the state level, there are several programs that have statutory subrogation interests. The most notable state level claims are payments made by Medicaid and those made pursuant to a Texas worker’s compensation policy.
A subrogation claim may also arise from an injured person’s own insurance policy. For example, if personal injury claimants have health insurance or Medical Payments coverage on their automobile policies, those policies likely contain a contractual subrogation provision. Contractual subrogation provisions are the most prevalent since health insurance is involved in most accident claims. Health insurance claims have their own set of complicated rules that depend on whether the insurance is offered as part of an employee benefit plan and whether the offered insurance is actually insurance or is merely a self-funded plan.
How Do You Get Around the Claims?
Each type of subrogation claim has its own set of rules regulating if, and when, a personal injury claimant may be able to avoid or reduce paying back the subrogation interest. Fortunately, most of the rules center on two main theories or arguments: the “common fund doctrine” and the “made whole doctrine.”
The common fund doctrine is based on the idea that each party must share in the costs incurred in seeking the recovery rather than the personal injury claimant shouldering the entire load of attorneys’ fees and expenses. Under the doctrine, the subrogation interest is reduced by some amount so that the paying party is paying a share of the attorneys’ fees and expenses incurred in the collection of the suit. The amount of the reduction depends on the type of subrogation interest. For example, in contractual health insurance cases, we argue that health insurance companies should pay a pro-rata share of the expenses. If the medical expenses are fifty percent of the total recovery, then the insurance company should pay fifty percent of the fees and expenses incurred in seeking the recovery. In Medicare cases, Medicare has a strict formula used to determine its share of fees and expenses. The made whole doctrine is based on the idea that the subrogation interest should not be reimbursed at all until the personal injury claimant is made whole by the settlement or verdict. The made whole doctrine may not be applied to as many cases as the common fund doctrine. It is largely only applicable when the defendant’s policy limits are not high enough to fully compensate the claimant.
Another major point of contention in car wreck and auto accident cases is whether subrogation interests attach to uninsured/underinsured motorist coverage. Most insurance companies are now writing their subrogation agreements more broadly in an effort to reach those policies. However, the Texas case law and the policy arguments behind the existence of UM/UIM insurance suggest that those policies should be protected.