What is Subrogation?

subrogationAfter your car accident, it was found that the other driver was entirely at fault. Your insurance paid your medical and car repair bills. All is done. Or is it? Next thing you know, the insurer is calling you to get more details about the accident. They mention the words, “subrogation” and “lawsuit.” What’s going on here?

First, we need to understand what subrogation is. By definition, subrogation means “one party that stands in the place of another.” In personal injury law, in order to sue, you must have standing. And to have standing, you must be the injured party.

In general terms, let’s say party A is injured by party B’s negligence. But party A is good friends with party B, and doesn’t want to sue party B. Party C witnessed the incident and is angry and wants to sue party B. Party C cannot do so because party C did not suffer the harm.

However, subrogation allows a third party like C to sue — to pursue a claim on behalf of the injured party. So how does this come about?

Well, let’s go back to my original example. After your accident, your insurance company paid your bills. Then it turned around and asserted a subrogation claim against the other driver to get reimbursed for the money it paid to you.

Subrogation cuts both ways. Let’s suppose your insurance company paid you $10,000 for your medical bills. But you sued the other driver and won $10,000 for medical bills and $5,000 for pain and suffering.

Now your insurance company has just made a subrogation claim against you for the $10,000 for medical bills that the other driver paid. So, your net earnings would still only be $10,000 for medical bills and $5,000 for pain and suffering, not $20,000 for medical bills.

Look at it from another angle. New Mexico has what is known as a collateral source rule, which states that the defendant’s liability for damages may not be reduced by benefits received by or for the plaintiff from a source other than damages awarded against the defendant. Which is why your insurance company can seek reimbursement from the responsible party for payments made on your behalf.

The purpose of subrogation is that the party at fault should compensate any losses caused by the incident, including the financial loss of your insurer. The defendant should not escape full liability because you had the foresight to purchase insurance.

Auto and health insurance policies often state that the insured has “assigned” his or her right to recover against the negligent party to the insurer and that the insured will do whatever is needed to assist the insurer to recover — a subrogation clause, if you will. In the example above, had you refused to pay your insurer the $10,000 and breached your contract, the insurer would likely sue you for that amount plus, in most cases, attorneys fees and costs incurred in obtaining their rightful payment. Your insurer may also cancel your insurance because you did not abide by your contractual obligations.

Sometimes, subrogation letters can act as a lien against settlement proceeds or trial recovery. That’s why you should notify your personal injury attorney of any liens or subrogations should you come across them. An experienced attorney will investigate payments, determine if subrogation is appropriate, and then negotiate reimbursement. Often, these liens can be negotiated down and simply require a statutory reduction. By taking care of the subrogation, your attorney actually protects you from future problems with your insurer. In New Mexico, contact the Atkinson Law Firm in Albuquerque for your free consultation!

Scott Atkinson (264 Posts)

Scott concentrates on serious personal injury cases. He believes that a catastrophic injury does not just affect the victim; it also dramatically impacts the victim’s family. Scott is in Albuquerque to fight for you to recover your New Mexico accident losses!