Subrogation and How It Affects Your Settlement

Several factors affect how much an individual actually receives from a settlement or award in a personal injury claim. One often unfamiliar factor is a subrogation lien. A subrogation lien is attached to personal injury settlement or award amounts by a third party to assert their right to be reimbursed for costs paid. This most often occurs when an injured person’s insurance pays for medical bills caused by another person. But how does this process work?

In the context of a personal injury claim, this means that if someone else hurts you, and refuses to pay immediately, you may have to file a suit against them to collect money to pay for medical bills and other expenses. But it can take years to receive that money. In the meantime, you will likely need to seek medical treatment. Who pays for that treatment? To avoid costly out-of-pocket expenses, some insurance plans offer protection for just this scenario. Additionally, some medical providers will suspend payment obligations while you pursue your claim against the party that injured you.

While an injured person may know their insurance is paying their medical bills or their doctor is temporarily suspending payment obligations, they may not know that the insurance or doctor has submitted a subrogation lien to the lawyers. A physician may assert a subrogation lien if they provide your lawyer with advanced notice and a copy of the bills. Your personal health insurance, personal injury protection, underinsured motorist, or uninsured motorist providers may only submit a subrogation lien if the policy specifically allows for it and there is also a law in your state to allow it. A subrogation lien attaches automatically if Medicaid pays for the costs. Any amount paid by Medicare is prioritized above other liens and, if the amount is high enough, may completely override other liens.

While this is an efficient and expedited way to facilitate payment to parties that have a right to some of the compensation recovered, it can be confusing for clients who have never heard of ‘subrogation.’ It can also be disappointing to expect a large sum of recovery money, only to find out that thousands of dollars go directly to insurance companies. The purpose of these liens is to prevent an injured person from getting payment for medical bills twice and to reimburse companies that should not have had to pay in the first place. At the same time, the subrogation structure ensures that the responsible party and/or their insurance (if they have any) still pays the whole amount owed to impose the punishment and justice required to deter bad behavior in the future. Attorneys must be careful in explaining a settlement offer or award amount to clients because subrogation loans often absorb a significant portion of the money received. This is one reason why hiring an attorney is so important, your attorney can negotiate with all lien holders to get them to reduce their lien amounts and maximize recovery for the client.