What is subrogation?

Posted by: Oct 30, 2016By Brian Stutheit

“Subrogation” means the right to be paid back. The subrogation right may arise in various ways such as when an insurer or a federal or state agency pays money to or on behalf of a damaged or injured party.  The agency or company paying money for the injured party has a legal right to recover the money it paid from whatever person caused the injury.

Example:  I.M. Hurt is hit and injured by a texting driver.  Hurt’s insurance company, Blue Cross, pays for her medical care. Blue Cross has a right to recover from the texting driver to the extent that Blue Cross has paid for Hurt’s hurts.  Blue Cross gets that right from a clause in the insurance policy which says, in effect, “If we pay for your injuries, and someone else caused those injuries, we get our money back from that someone else.” The typical contract also says the injured person must tell the insurance company or paying agency that a claim is being made against the wrongdoer.  Attempting to settle a claim without telling the subrogated company will always lead to trouble.  In fact, federal law makes it a potentially criminal act to settle with a wrongdoer and not let the feds know. This would apply where Medicaid or Medicare paid the medical bills of the injured party.

Subrogation rights occur in situations where I.M. Hurt gets assistance from Medicare, Medicaid, worker’s compensation, medical/health insurance, auto insurance, uninsured/underinsured motorist insurance, and property insurance.

When someone is injured and sues the wrongdoer, the injured person typically reaches an agreement with his insurance carrier or other subrogated company.  The subrogated company, such as Blue Cross, allows the injured person to sue for all the damages, including everything Blue Cross paid.  The injured person agrees to pay back a percentage of what is recovered to the subrogated company, and the subrogated company lets the injured party keep some of what the company could otherwise recover as a payment or incentive for doing all the work.

However, a subrogated company or agency has the right to sue the wrongdoer directly.  It might be said that Blue Cross would have the right to “stand in the shoes” of I.M. Hurt and sue the texting driver for everything Blue Cross paid out to care for Hurt. This is not uncommon.