What is Subrogation and Why Do I have to Pay?
Posted on Wednesday, December 7th, 2022
Many people expect a straight-forward process when they win a mass tort lawsuit: They win their claim, the defendant pays, and they get a check. If we had our way, that’s the way the process would work. Unfortunately, thanks to quiet but persistent effort by the insurance industry, that’s not the way it works.
Few people pay attention to the heady term “tort subrogation.” Yet they should, because if they find themselves holding a corporation accountable for their injury or illness, tort subrogation can reduce their award by thousands of dollars or more.
Subrogation and Lawsuits
When you win a lawsuit, the big “S” word becomes one of our – and your – greatest foes. By definition, subrogation is what happens when one party takes on the legal rights of another, substituting one creditor for another. It sounds confusing, but in mass tort and other lawsuits, it boils down to this:
When you are injured and require medical care, which is usually the basis for these types of claims, Medicare and/or a health insurance company pays for all or part of your care.
When you win a lawsuit regarding that injury, Medicare and/or the insurance company has a legal right to take back all of the money they paid out on your medical claim. This can be a significant portion of your award.
It’s heartbreaking for you, particularly if you’ve depended on your lawsuit to pay for expenses that have piled up due to your illness. It’s also difficult for us to see, because we feel you deserve all of the compensation that we’ve negotiated or won on your behalf.
Will My Compensation be Affected by Subrogation?
The long and short answer to the question of what your insurance company or Medicare/Medicaid will take from your award is that we have no way of knowing.
Our job is to fight for compensation for your injuries, but once it’s awarded, only then will the insurance company or other parties you may legally be indebted to come forward.
Many people have no idea that they will have to repay these parties, and it comes as a surprise when their awards are reduced. We have no way of calculating what they will claim ahead of time. We wish we could have that crystal ball, but it’s simply not information we are given.
What we can do is inform you about this process and let you know that, regardless of subrogation, OnderLaw will continue to fight for all we can when it comes to protecting your rights and compensating you for your injuries.
How Can Insurance Companies Claim My Money?
When you win or settle a lawsuit, there are two ways some of that money can be taken before you receive a check. The first is through liens. This can include outstanding medical bills, back child support or alimony, bankruptcy, debts in collection, or any other claim to your money that would likely appear on a credit report.
The second way is through subrogation. Through the years, insurance companies and other interested parties have convinced lawmakers that they deserve to be compensated before you can collect the compensation you’ve been awarded
If you read your insurance policy carefully, it very likely talks about subrogation in language that’s difficult for most people to understand or comprehend. In the fine print, the policy likely states that any court-awarded compensation is subject to subrogation. We don’t think it’s fair, but it’s a reality.
When you buy health insurance, you’re paying for the insurance company to cover costs you may incur if you become sick or injured. The insurance company is banking on the likelihood that you’ll pay more for your premiums than you need in coverage. It’s a gamble for them, but in millions of cases, it works. They make more money than they pay out.
However, when you become injured or sick, you will likely cost the insurance company money. They lose their roll of the dice. For decades, they’ve had to completely absorb their losses – usually by raising their premiums or lowering coverages, but rarely (if ever) letting their payouts affect their profit margins.
At times, insurance companies claimed their rights to subrogation in workers’ compensation and other cases, but this was always tempered by what was called the “Made Whole Doctrine,” which said that insurance companies could claim their share only after the injured party was fully compensated.
How Mass Tort Lawsuits Changed Subrogation
Then along came mass tort lawsuits. Plaintiffs began winning thousands or millions of dollars for their injuries, and insurance companies decided they wanted a piece of that pie. They called upon the subrogation process, saying they wanted to use the process to keep premiums lowered.
Early American lawmakers incorporated subrogation into U.S. law, but the evolution of what’s called “tort subrogation” has taken a new and troublesome path. Not only have they not lowered premiums, they’ve managed to change the subrogation laws that were established to provide equity into greedy opportunities for insurance companies to profit.
Demise of the “Made Whole” Doctrine
As mentioned earlier, prior to the early 2000s, subrogation laws governing insurance companies were based upon what was called the Made Whole Doctrine. This was a provision that said the victim (i.e., the plaintiff – you) were to be entirely compensated before subrogation could be enforced.
That changed in 2006, when the U.S. Supreme Court ruled on Sereboff v. Mid Atlantic Medical Services. The court found that the insurance company could claim subrogation, or compensation for the medical expenses they paid, regardless of whether or not the injured or sick person would be fully compensated.
It was an important decision that set the stage for today, and it very well may affect any compensation you receive from your claim.
As a side note, this is one more reason why becoming involved in the election process for your state and national legislative representatives and any judicial elections is so important. These elected officials have a direct hand in creating, and interpreting, the laws that allow subrogation to expand. Researching their history in personal injury and mass tort policies and case law and whether or not they tend to favor corporations is critical.
We may be fighting an unfair battle at times, but that makes our mission all the more important. Your rights matter, and together, we are making a difference.