Subrogation in Auto Insurance and Workers' Compensation Cases

October 29, 2010

Though subrogation is a common term and practice within the insurance industry, it can seem dense and even rather daunting to everyone else. If you are dealing with an insurance company, however, it is important to know what subrogation is and how it works.

Subrogation is not unique to the world of insurance policies. The term "subrogation" refers to the procedure by which a party pays another's debt or other obligation, then seeks to assert the legal rights of the party who has been paid in order to recover that money from someone else (a third party) who is responsible for the debt. In other words, B pays C's debt to A, and B then seeks to recover the money from C.

The paying party does not have to be an insurance company; a creditor, guarantor or surety could also be a payor. Subrogation allows this payor -- often called a "collateral source" -- to step into the shoes of the party they have compensated and pursue the money to be made whole.

In cases involving insurance, the collateral source will often be a private insurer. But a government agency, such as a workers' compensation fund, can also play this role and be in the position of pursuing repayment. With private insurance, subrogation rights may be written right into the contract, although state statutes sometimes prohibit subrogation with certain types of insurance -- particularly life insurance. In other cases, a statute may establish the right of a government agency to use subrogation to recover damages from liable parties.

Toyota Recall Cases

Let's use a current example to illustrate how insurance subrogation works. Toyota has recalled over 8 million vehicles because of concerns about sudden acceleration caused by problems with removable floor mats and sticky gas pedals. The U.S. government fined Toyota $16.4 million for failing to disclose important safety information about these problems.

What happens when auto insurance carriers pay out on claims arising from injuries involving Toyota vehicles that were subject to recalls? These companies act as "collateral sources" in paying for accidents that were apparently caused by their policy holders. Can the insurance companies proceed against Toyota for full or partial reimbursement of those payments, if the claims arose from injuries caused by product defects in Toyota's manufacturing?

Legally and factually, the answer seems to be yes. The auto insurers are reviewing their legal options for pursuing subrogation actions against Toyota for claims they have paid out on in cases involving the acceleration problems that prompted the recalls. The large auto insurers may be combining their most serious claims against Toyota, and a mediation firm may help negotiate the amount of the reimbursement from Toyota to the auto insurers.

Individual Auto Insurance Claims

Subrogation does not only affect large, high-profile cases like the Toyota recalls. It can be involved in any type of claim involving an insurance company. With over seven million traffic accidents in the United States every year, however, auto insurance is a common way in which subrogation issues arise.

Consider, for example, these possible scenarios:
- You have adequate insurance and are involved in an accident that was the other driver's fault. Your insurance company compensates you, and then pursues recovery from the other driver or the other driver's insurance company through subrogation.
- You are involved in an accident that was your fault, but you didn't have insurance or enough insurance. The other driver uses his or her uninsured motorist coverage. The insurance company for the other driver then turns around and pursues recovery from you through subrogation for the money the company paid out to the policyholder.
- You are involved in an accident that was your fault, but you do have sufficient insurance. The insurance company for the other driver compensates its insured, but then seeks to recover from your insurance company through subrogation.

In the first scenario, your insurer may or may not seek to recover your deductible amount for you from the other driver's insurance company.

In the second scenario, if bodily injury was involved, you could be contacted by the subrogation department of the other driver's insurer. It is important to take these contacts seriously, and you may want to talk to a lawyer who knows your state's subrogation law.

Workers' Compensation

In addition to auto insurance claims, subrogation issues also commonly occur in workers' compensation cases. An employee injured at work is usually compensated through workers' compensation insurance. But what if a third party, such as a contractor on a construction site, was responsible for causing the work injury? In that case, the employee or the workers' compensation insurer may choose to pursue an action against the third party.

State statutes often set forth the specific rights that the employer and the employee have when pursuing recovery from a third party. In Idaho, for example, a statute provides that after the employer pays out workers' compensation benefits to an injured employee, the employer can then seek recovery through a subrogation action against any third party responsible for the injury. And if the employee recovers from the third party directly, the employer has the right to be reimbursed for the amount it already paid out.

Conclusion

Subrogation does not have to be an off-putting term, but it does sometimes raise difficult issues. One of these is how subrogation rights affect the settlement of third party lawsuits, such as those by an auto insurer against the party responsible for an accident. State laws vary on how that circumstance is handled. With these and other legal issues of concern, it is best to consult with a personal injury attorney in your area.

Article provided by Carty Law, P.A.
Visit us at www.cartylaw.net