The term subrogation means one person in place of another. In a personal injury case, subrogation rights are applied when someone other than the individual who caused an accident pays for any damages that are awarded. Also known as a collateral source, this is a private organization—typically an insurance company or a government agency. In many cases, it is the insurance company that pays out to the injured party.
Limitations of Subrogation Rights
It is important to note that an individual cannot receive what the industry terms a “double recovery.” While injured parties are able to seek damages to compensate for injury or loss, this person should not be able to make a profit from the incident. If an insurer, as the collateral source, pays $15,000 towards an individual’s damages, and then the party is awarded $15,000 in court to be paid by the defendant, the plaintiff will not get to pocket that money. Instead, the court-awarded damages will be paid out to the insurance company program.
Waiver of Subrogation
In some professional circumstances—often when work is to be completed by subcontractors on a construction site— a waiver of subrogation is requested or required. If a waiver of subrogation is enacted, the insurance carrier of the subcontractor would waive the right to pursue reimbursement from the contractor’s insurance company, thus protecting the contractor’s insurance company from having to pay out any workers compensation claims in the event that a subcontractor is injured on the job site. If an injury on the job site does occur, the subcontractor’s premium will almost certainly be raised significantly. You should strongly consider speaking with a personal injury attorney before agreeing to sign a waiver of subrogation.
Conditions of Subrogation
The insurer filing the claim must be made and the subrogee (otherwise known as the person or organization filing the subrogation suit) must not have volunteered to pay the injured party, but rather must have responded to a formal claim. The subrogee must have paid the entirety of the debt of the original injured party— paying off a debt that was previously owed does not constitute grounds for filing a subrogation claim. The subrogee must not have been primarily liable for that debt before the incident/claim occurred. Furthermore, the subrogee must have made the initial payment as a means of protecting interest. In the case of an insurance company, this would mean settling a claim to meet the needs of a policyholder.