What’s Subrogation? And Why is it Taking My Money?

One of the many frustrating things a person can experience after accepting an injury settlement with the at fault party’s insurance company is realizing how little of the money ends up in the injured person’s pocket.

For example: Jim, 65 years old, went for a drive one Sunday afternoon, and while stopped at a red-light, another car rammed into the back of his car. Jim ends up at the emergency room, he’s diagnosed with a neck sprain, and told to follow up with his doctor. He does, and his doctor prescribes three months of physical therapy. Fortunately for Jim, he’s feeling much better after completing 10 physical therapy sessions.

The ambulance, the hospital, Jim’s doctor’s office, and the physical therapist billed Jim’s auto insurance throughout Jim’s medical treatment. The total bill was $5,000, all of which was paid through Jim’s $5,000 in medical payment coverage. Jim was happy to have the medical bills paid, and he appreciated his insurance company honoring the premiums he’d paid for the past 30 years without ever making a claim.

Three months after the crash, the at fault party’s insurance company is hounding Jim with phone calls and letters about settling the bodily injury claim against its insured. Eventually the insurance adjuster tells Jim, “We’ll offer $6,000 to settle your claim; I can send you the release today, and after you sign, we’ll send you a check.”

$6,000 sounds low to Jim. Definitely not worth his experience over the past few months, but still, it could be worse. He wants to be done with the whole thing: “I’ll put the $6,000 in the bank and move on with life.” So Jim thinks….

A week or so later, a check arrives: $1,000. “What happened to the other $5,000?” The insurance adjuster tells Jim that $5,000 was sent to Jim’s auto insurance company for repayment of the medical payments. “It’s called subrogation,” the adjuster tells Jim.

Subrogation is a legal term that means that someone (or thing) is standing in place of another, holding the same legal rights as that other person. In our example, Jim’s insurance company asserted a right to stand in Jim’s place and recover its $5,000 medical payments from the at fault party’s insurance company.

Just because an insurance company says it has subrogation rights doesn’t make it so. It’s a matter of analyzing an insurance policy or other contract, the Ohio Revised Code, or even federal law to determine the legitimacy of the claimed right to subrogation or reimbursement. And even if there is a right to subrogation or reimbursement, the law provides reductions to subrogation or reimbursement rights in certain situations—to help the person who was actually injured.

But the important thing is for the injured person to know—before accepting a settlement offer—how much of that money actually ends up in his or her pocket. If Jim had known that by accepting a $6,000 offer, he would have received a check for $1,000, would he have accepted that offer?

A lawyer experienced in dealing with these issues can help navigate the complexities of subrogation and rights of reimbursement, and help you make an informed decision about a settlement offer. Before signing the release that the insurance company seems so eager to provide, make sure you understand the details of the settlement, and where that money is going.