Law Blog

An Introduction to Subrogation – I.E. Paying Back Your Insurance Company

Subrogation is a concept in law that essentially states that you cannot be paid twice for the same injury. So what does that have to do with your personal injury case? Let me explain:

In the typical vehicle collision case, the injured person’s medical bills are usually paid by their car insurance (PIP), and/or their health insurance. Essentially, this counts as the injured person being “paid” for their medical treatment – they aren’t having to pay out of pocket. Fast forward to the end of the case – you settle with the person who hit you. Those settlements almost always include payment for your medical bills. In this scenario, there is then an obligation to pay some of those settlement funds back to your car or health insurance.

HOWEVER, and this is where things get interesting, you may not have to pay back the entire amount that your own insurance company(ies) paid. Washington adheres to the “Made Whole Doctrine.” This means that subrogation doesn’t have to be paid unless you have been made whole, which includes your medical bills, lost wages, and general damages like pain and suffering. Washington case law has also held that when you have an attorney help you, that attorney is also, to a degree, working to collect funds for your car or health insurance (the Common Fund Doctrine). What this means is that your insurance (in most cases) gets paid back less than what they paid.

Let’s use an example. Your medical bills after being rear-ended are $10,000. You have PIP and your car insurance paid all of it. Then you settle with the person who hit you for $25,000. You missed a day of work and slept poorly for a few days, but were otherwise ok after a couple of months of treatment. Let’s assume you have been made whole, and your attorney spent $1,000 on your case. In such a case, you would have to pay your insurance company approximately $6,333.70 [$10,000 spent minus attorney fees (typically 33%) and 1/3 of costs]. The money that is “saved” goes to you.

Unfortunately, much of the above does not apply if your health insurance is provided through your employer. In many cases (but not all), those plans are not governed by Washington law. Instead, they are governed by a federal law known by its acronym, ERISA. Plans governed by ERISA often do not have to adhere to the Common Fund Doctrine. However, just because a health plan claims that ERISA applies doesn’t mean you have to take their word for it. There are strict requirements for ERISA to apply, and a knowledgeable attorney will know what documents to request to make them prove it. If they can’t, then Washington law applies.

A note of caution: subrogation law can be quite complex and the above is only an explanation of the basics. If you’ve been injured by someone and insurance companies are involved, you should speak to a knowledgeable attorney. Don’t try to handle these things on your own.