Insurance can be a wonderful thing to have. It creates peace of mind by paying for things like medical expenses, property damage, and funeral expenses at times when we most need that extra help. Sometimes, though, insurance companies can do things that confuse the average consumer. When those instances arise, a competent attorney can help you navigate the insurance issues you face and understand your rights and obligations.
Obligations? Yes, that’s correct – sometimes you have certain legal obligations to your own insurance company, even when someone else injures you. For example, if you are injured in a car accident caused by another person, and your own insurance (be it auto or health insurance, Medicare, Medicaid, etc.) pays for some or all of your medical care, do you have to pay your insurance back in the event you get a settlement from the other guy’s insurance? The answer is YES. This concept is called “subrogation.” In fact, if you look at your insurance policy, you will likely find a section on subrogation that’ll look something like this:
Subrogation – Our Right to Recover Payment.
- If we make payment under this policy and the person to or for whom payment was made has a right to recover damages, we will be subrogated to that right (have that right transferred to us). That person must do whatever is necessary to enable us to exercise our rights and must do nothing after the loss to prejudice our rights. An insured must not pursue our subrogated interest without our written permission.
- If we make a payment under this policy, and the person to or for whom payment was made recovers damages from another, that person must reimburse us to the extent of our payment.
- We may prosecute in the name of any insured for the recovery of these payments. We may use any documents in our files to pursue our subrogation claim.
What this insurance policy is saying, in essence, is that (1) if you get injured and have a legal claim against the person that injured you, (2) your own insurance pays for your medical treatment in the meantime, and (3) the insurance company of the person that injured you later pays you a settlement, then you (the “insured”) not only have to reimburse your insurance company for the medical payments they made on your behalf, but you also cannot do anything to prejudice your insurance company’s right to reimbursement (such as settle your case with the person that injured you for ten bucks under the table and a handshake).
A lot of people are surprised and angered to learn that their own insurance company has a subrogated lien on their case and is demanding repayment. While I’m not really a fan of subrogation myself, I can see some logic behind it: If the insurance company of the guy that hit you pays you a settlement and the settlement includes compensation for medical bills, but it was your own insurance company that paid your medical bills for you, then that portion of your settlement ought to go to your insurance company to reimburse them. From the insurance company standpoint, it doesn’t matter that you pay them a monthly premium for insurance coverage. They are still entitled to be reimbursed because you received direct compensation for something that they in fact paid, and you agreed to this right to reimbursement in your insurance contract (bear in mind that you paying monthly insurance premiums is not considered the same thing as you paying for your own medical bills yourself).
Now, even though your insurance company, under the insurance policy you agreed to when you first signed up for coverage, is likely entitled to be reimbursed for every penny they spent on your behalf if you get a settlement, some states have laws that require the insurance company to make a “pro rata” reduction in their subrogated lien to account for “attorney fees and costs.” In other words, if you hadn’t gone out and hired an attorney to assert your rights and obtain your car crash settlement for you, then you may not have even received a settlement and your insurance would not be receiving a reimbursement. So, those state-specific laws mandate that your insurance should contribute to the attorney fees and costs you had to pay toward resolving your legal case by discounting their subrogated lien. Often this discount amounts to a reduction of about 1/3, although in some cases it can be less or even more. So, if for example you hired an attorney, she fought for you and got a settlement from the insurance of the guy that hit you, and meanwhile your own insurance paid $6,000.00 towards your medical treatment, then your insurance might potentially reduce its lien by a third to $4,000.00, which in essence puts another $2,000.00 in your pocket. However, this “attorney fees and costs” reduction concept varies by state. And what’s more, if your health insurance plan happens to be an employer self-funded plan protected by ERISA (a federal law called the “Employee Retirement Income Security Act of 1974”), then state laws requiring a reduction for attorney fees and costs may not apply, and your insurance will argue that they are entitled to receive every penny back.
Yet, regardless of what state you live in or whether your health insurance plan is an ERISA plan, your attorney can still attempt to negotiate a reduction of your health insurer’s lien. Here’s an example: I recently settled a catastrophic injury case in which a 60-year-old bicyclist was attacked by a dog and sent flying, hitting her head hard enough to crack her helmet and inflict a traumatic brain injury. My client’s health insurance company paid a significant amount of money for her medical treatment. Once her case against the dog’s owner was settled and all the attorney fees and costs were deducted, we were faced with the task of getting her insurance company to reduce its subrogated lien. The trouble is, the insurance policy was a self-funded ERISA plan, and the insurer argued that under the language of the plan it was entitled to 100% reimbursement out of my client’s settlement.
I sent the insurance company a letter asking them to reduce their lien in light of my client’s severe injuries and their long-term effects, and the fact that the settlement probably would not have been obtained but for the work I did on the case. The insurance company told me to “go pound sand,” and argued that they had a right to full reimbursement. I sent another request to the insurer explaining that I respected their position but wasn’t convinced a court would interpret the insurance plan language in their favor against their insured (my client) due to defects I perceived in the plan language. I stood my ground, argued that the insurer should pay a pro rata share of attorney fees and costs, and again asked for a good-faith reduction. Within a couple months I got a letter back from the insurer agreeing to a reduction! This put about another $35,000.00 directly into my client’s pocket. Needless to say, she and her husband were thrilled.
In sum, and as I pointed out in an earlier post, a lot of complicated insurance issues like subrogation can pop up when you’re in a car accident, even when you weren’t at fault. Experienced personal injury attorneys are aware of these issues and can negotiate them on your behalf. Here at our law firm, resolving insurance company subrogated liens is one of the many ways we fight for our clients’ rights and best interests. After all, when you’re injured the last thing you want to deal with is an insurance headache – especially from your own insurance!
If you’re in the middle of dealing with an insurance headache as such, get in touch with one of our experienced attorneys.