By Logan Quirk
For the average person, receiving a subrogation letter in the mail comes as a surprise. It happens after an accident causes injuries that require medical treatment. Whether you believe healthcare is a right or a privilege, people who have it don’t think twice about using it when needed. They assume that their insurance coverage will pay for their medical care no matter what caused their condition. But sometimes the process isn’t that simple.
What Is Subrogation?
In its simplest terms, subrogation occurs when an insurance company pays for its client’s losses and injuries, then sues the at-fault party’s insurance company to compensate for their expenses. The act of subrogation is much more complex.
Most people who receive a subrogation have been injured in a car wreck. Generally, people have both auto insurance and medical insurance with overlapping coverage. That means that their auto insurance policy might provide a specified amount of medical liability to pay medical expenses for someone else who is injured in an accident. That doesn’t mean that an accident victim can collect for the same injuries twice. Instead, the auto insurance only covers up to the stated amount of coverage. If their costs are more than that, the at-fault party is liable for the difference.
Fault Vs No-Fault
All states don’t observe the same type of insurance laws. Both California and Nevada are “fault” insurance states, meaning that the at-fault person must pay for the other person’s injuries and damages. However, Nevada doesn’t have a right of subrogation for medical payments by the at-fault driver. But most medical insurance companies include a right of subrogation. This allows them to recover their money from their client if they receive compensation from the at-fault driver’s liability coverage on their auto insurance policy.
In the twelve no-fault states, the person’s own insurance pays for damages and injuries regardless of who caused the wreck. These drivers must purchase auto insurance policies with personal injury protection (PIP). Three states, including Kentucky, New Jersey, and Pennsylvania, have a ‘choice’ no-fault law that allows motorists to reject a lawsuit’s monetary threshold so they retain the right to sue over injuries. In some states with no-fault policies, insurance companies don’t have the right to seek reimbursement from the motorists. However, they retain the right to subrogation.
Differences in state laws make it even more confusing for accident victims to understand their rights. Subrogation clauses are often listed as clauses in insurance policies. While some states prohibit subrogation, some allow it. The clauses in the insurance policy explain specifically what the subrogation process is for that insurance company.
Speaking with a personal injury attorney after an accident is always a good idea. They will evaluate the wreck and explain the accident victim’s rights. After a person receives a subrogation letter, the attorney will advise them on whether they need to take any action. Sometimes the letter serves as a notice of the insurance company’s actions without any need for a response or action from their client. When the client has a personal injury claim against the at-fault driver, the client might need to take a more aggressive approach.
What to Do After an Accident
You’ve just been in an accident, now what? It isn’t something that people prepare for or know instinctively how to handle. A car wreck is a traumatic experience that usually happens in a matter of seconds. The body responds by producing adrenaline, the “fight or flight” hormone that increases the heart rate and energy. Although the hormone helps people deal with extreme stress, it can also mask pain.
That’s why getting medical care should always be a priority after an accident. All serious injurious aren’t apparent right away. Waiting until symptoms appear gives them time to get worse. If no one has obvious symptoms of a severe injury at the scene, they should go to an emergency room or urgent treatment center immediately after the wreck. This ensures they don’t end up waiting for days or weeks until their regular physician can “fit them in.” Once they have been examined and created a medical record for the event, they can follow up with their primary care physician.
Even if an ambulance isn’t needed at the accident, the victims should call 911. Law enforcement will create an accident report that the insurance company requires for payment. The information on the accident report will help the insurance company determine who is at fault. If they determine someone else is responsible for their client’s injuries, they might send a subrogation letter weeks later, informing their client of their intent to sue the at-fault party’s insurance company.
The insurance company also wants to know if their client plans to file a lawsuit against the responsible party. The insurance company will pay their client’s claims according to their insurance policy. If the client has health insurance, it will cover part of their medical costs. Once the accident victim receives the necessary medical treatment, the next step is to contact an accident attorney.
Filing a Personal Injury Claim
Most states require auto insurance and they have minimum requirements for bodily injury per person and per accident and for property damage. For example, for states requiring a minimum of 20/40/15, the policy will pay up to $20,000 per person and $40,000 per accident for bodily injury. It will pay up to $15,000 for property damage. California has a 15/30/5 requirement. Using this number as a guideline, consider the following scenario…
You just left the eye doctor’s office with your eyes dilated. The flimsy sunglasses they gave you to shield your eyes keep falling off, letting the bright California sun shine directly into your sensitive eyes. You’ve been through the same intersection hundreds of times before. This time, you don’t see the traffic light turn red as you approach. You also don’t see the car entering from your right and entering the intersection. By the time you realize the car is there, there’s no time to apply the brakes. You slam into an SUV carrying six members of the local elementary school’s soccer team as one of the players’ mother drives them to the game.
When the smoke clears, you have a severely fractured leg and a broken collar bone. You don’t learn until later, after you wake up from surgery in the hospital, that the soccer mom and two of the players have been seriously injured. The remaining soccer players have mild to moderate injuries. Their $90,000 SUV is totaled. Now, think about your insurance coverage.
For starters, you have $15,000 in insurance to cover the damages to the SUV. Your insurance pays up to $40,000 per accident to be distributed across all seven injured people. Your insurance policy doesn’t include personal coverage. Your medical treatment depends on your health insurance.
Many drivers don’t realize what the limits on their insurance policy mean. They drive around with inadequate coverage until they need more, and it isn’t there. In this scenario, the insurance coverage would cover more than a million dollars less than the total property and personal injury liability. That leaves the at-fault driver responsible for the rest.
Now, think about being on the other side of the scenario. How would you feel if you were the soccer mom? People who are injured through no fault of their own have the right to compensation. They deserve the best medical care for as long as their injuries and symptoms last. They deserve compensation for their lost wages, property, and their pain and suffering. Even when the physical injuries heal, the psychological impact of a serious wreck can leave them with lingering issues. That’s why people file personal injury claims. Sometimes the subrogation process interferes with their ability to reap the rewards of a personal injury case.
A car accident victim who must undergo surgery and has an extended stay in the hospital faces medical bills of tens of thousands of dollars. On top of these costs, they must pay co-pays, deductibles, and the cost of uncovered procedures or tests. If the total cost of medical care is $80,000, they might file a personal injury claim for $120,000 to include pain and suffering, loss of wages, and any future medical treatment they require.
Meanwhile, the health insurance company pays the $80,000 in medical bills. When they win their personal injury case, they receive a subrogation letter saying that the insurance company is subrogating to get the $80,000 back. They must pay attorney’s fees based on a percentage of the overall settlement amount. At a rate of 20%, that would be another $24,000. That leaves them with $24,000 to pay any additional medical fees they are responsible for out-of-pocket, What is left is all they have to pay their bills until they are able to resume work, if ever.
Many people believe the potential outcome of a personal injury claim isn’t worth the effort. It’s almost as though the accident victim does the work for the insurance company. They are the ones who benefit in the end. California’s “Made Whole Doctrine” alleviates this worry to a large degree.
The Made Whole Doctrine
All fifty states have adopted the Made Whole Doctrine but its meaning varies from state to state. In some states, it has little to do with the subrogation process used by insurance companies. In California, it applies to cases where two parties are competing for recovery.
The doctrine specifies that the insured must be “made whole” for uninsured damages incurred by the at-fault party before the insurance company can subrogate from the at-fault party or their insured client. The state adopted the doctrine in 1974 to prevent insurers from recovering third-party funds before the insured.
That means that in the previous scenario, the recovery of $120,000 less the damages of $80,000 leaves $40,000. This is the maximum amount the insurance company can subrogate. Attorney’s fees are not considered damages. Still, the insured comes out with a significantly better settlement than if the doctrine weren’t applied.
Protection Against Subrogation
Car accidents are unexpected, traumatic events. The process that follows might be worse if the accident victim doesn’t know what to expect. The more a person knows about their state’s laws, the better protected they’ll be.
Every person should know what’s in their insurance policies. In some states, the minimum requirement for bodily injury is only $5,000 or $10,000. That amount doesn’t come close to the cost of treating one person with a serious injury. When there are multiple victims, the costs can climb substantially. Don’t assume the minimum is enough. Also, find out your options for taking out personal insurance coverage in case you need medical care.
If the company an employee works for has a self-insured plan for employees, it could change their rights. Employees should learn all about their healthcare plan before they get a subrogation letter in the mail. Self-insured businesses pay the premiums for their employees and handle their claims instead of using a third-party insurer. Some self-insured plans contain subrogation provisions to recoup benefits paid to an employee or the employee’s beneficiary. Sometimes these plans allow subrogation even in states where it isn’t normally permitted. If an employee isn’t sure of their rights under their company’s healthcare plans, they should talk with an attorney.
If a person’s health plan doesn’t specify that it doesn’t cover attorney’s fees, they should request to have them deducted from the reimbursement claim. This could reduce the amount deducted from the reimbursement significantly.
Finally, the individual should ask for any unrelated claims to be removed from the claim. Otherwise, they could end up paying back the insurance company for payments that weren’t related to the accident.
If a subrogation letter arrives in the mail, it might come directly from the insurance company or from a second-party company. In most cases, the letter is nothing more than an acknowledgment of the insurance company’s attempt to recoup their money. It doesn’t require any action on the recipient’s part.
On the other hand, if the letter refers to a case involving a personal injury lawsuit or it contains information that isn’t clear, the recipient should talk with their personal injury attorney about what the subrogation process might mean to their case. The same is true if the letter requests information that might damage their case.
Let Us Explain Your Rights
If you’ve received a subrogation letter and aren’t sure if you need to take action, contact Quirk Law Group. Even if you haven’t filed a personal injury claim, you need to understand how the process might affect you.