Learn why you may be legally required to repay your own insurance company for the costs they incur paying for your medical bills after an auto accident. Read here to find out what subrogation is and its significance to your personal injury claim.
Subrogation Explained
Sometimes when an insurance company or other entity pays medical or other expenses on your behalf, they are entitled to get their money back if you collect money from the person responsible for your accident. This is called a right of subrogation. It is simply the right of the payer to be reimbursed in certain circumstances.
Subrogation is designed, in theory, to prevent “double-dipping”, or in other words, to prevent a plaintiff from collecting more than once for the same element of damages. This is best explained by example:
Suppose that you have an accident and have Med-Pay/PIP coverage on your own policy which pays the first $10,000 of your medical bills, which totaled $20,000. Then, you sue the driver who was at fault for the accident and get money from the jury for pain and suffering, lost wages, as well as the full $20,000 for your medical bills. At This point, you have collected $20,000 for your medical bills from the party at fault for your accident and had $10,000 of the bills paid by your own insurance company. As such, you have a net gain of $10,000 with regard to your medical bills ($30,000 collected minus $20,000 worth of bills). In most states this is seen as unfair and the law gives your own insurance company the right to be paid back the $10,000 that it spent on your medical bills.
Understand, you only have to pay back your own insurance company if you also collect that money from the party at fault for your accident. Suppose the responsible party had no money and no insurance, and as such you were unable to collect any money in your claim or lawsuit. You would then not have to pay back your insurance company. You only have to pay them back to the extent that you make an overall gain by collecting from the party at fault.
Subrogation in “No-Fault” States
Subrogation is becoming more complicated in practice because of modern no-fault laws. While this may be of no concern to you if don’t live in a “no-fault” state, it still might benefit you to know how subrogation works in other states.
Traditionally, you would collect all medical bills from the party at fault and then pay back your own insurance company to the extent that you realized an overall gain. In this scenario, the defendant, who was the wrongdoer, does not receive any benefit from the fact that you have purchased insurance that will pay all or a part of your bills. No-fault laws, however, are changing this.
In no-fault states, the liability of the party at fault is reduced by the extent that your bills are paid by your own insurance. So, paradoxically, the party at fault gets a credit for you having purchased insurance protection for yourself.
Thus, using the previous example, the defendant would only have to pay you for $10,000 of the $20,000 in medical bills because your own insurance paid the first $10,000. In turn, you do not have to pay anything to your own insurance company. In effect, you have paid your hard earned dollars for a policy that ultimately financially benefits the wrongdoer.
As you might imagine, many people have some moral concerns about the fairness of these systems, although it must be admitted that it simplifies the process to some extent. No-fault laws are being implemented in more and more states under the theory that ultimately they reduce lawsuits and, therefore, insurance costs.
While this is a very basic explanation of subrogation, in reality, subrogation claims can be very complicated. For this reason, you need to consult with an experienced personal injury attorney who has significant experience in auto accidents and related insurance claims. Most auto accident victims receive larger awards when represented by a qualified attorney than when they go it alone.