Subrogation is the principle that insurance companies or Medicaid and Medicare have a legal right to be reimbursed for the medical expenses they paid to an injured person’s health care provider when the personal injury case is settled or produces a monetary verdict at trial.
The principle goes something like this – If the plaintiff incurs $50,000 in medical bills stemming from his or her injury, and the plaintiff’s attorney uses that damage item as part of the strategy to get a large settlement or trial verdict, then the insurance or government entity that had paid a portion of those medical bills is entitled by law to be reimbursed from the money received from the settlement or jury verdict. Otherwise, the injured plaintiff would be receiving a double recovery if the injured plaintiff is permitted to keep that money.
Although this doctrine appears fair on its face, it can result in an unfair windfall to the insurance company or government agency. Why? Because it is the plaintiff and his attorney who devotes the time and effort to obtain a monetary award for those medical payments, with no effort or work performed by the insurance company.
There are two ways that this problem can be tackled by the plaintiff’s attorney:
- The attorney can try to negotiate with the insurance company to reduce the amount of its lien. For example, if the evidence in the case is partially unfavorable to the plaintiff, which results in a small settlement or jury verdict, the plaintiff’s attorney can argue that since the plaintiff is obtaining less than the full amount of damages for medical bills, lost income and pain and suffering, this burden should be also be borne by the insurance company by reducing its lien. For example, if a car crash results in a theoretical settlement based on $50,000 in medical bills, $40,000 in lost income, and $30,000 in pain and suffering, the settlement or verdict should be in the vicinity of $120,000. However, assuming that the jury finds that the injured plaintiff is responsible for 25% of the negligence leading to the injury, the amount of the jury verdict or settlement will be reduced by 25%. It would clearly be unfair for the plaintiff to bear all of the burden of the settlement reduction. In such an instance a plaintiff’s attorney may be able to negotiate with the insurance company to reduce the amount of its lien by 25%.
- The attorney fees in a personal injury case is generally a contingency fee of one third of the settlement or jury verdict. This contingency fee format enables injured persons to hire an attorney at a time when they don’t have the funds to pay the attorney hourly-based attorney fees incurred from month to month as the case progresses. Again, it would be unfair if the insurance company did not share in the cost of the attorney fees incurred in prosecuting the lawsuit.
Many insurance companies will agree to reduce its lien by one third of the amount of the lien. However, this does not occur automatically. Sometimes the plaintiff’s attorney must argue aggressively with the insurance company to make the one third reduction in the lien.
To obtain the largest possible monetary recovery arising from an injury due to the negligence of another party or person, it is crucial that an injured person hire an attorney with extensive experience in handling personal injury cases.