Below are 10 of the most common questions people have about subrogation claims, process, strategy, and law. You will also find resources for potential and present clients, as well as educational resources for subrogation and insurance professionals:
1. What is a subrogation claim?
Subrogation is a legal term that refers to creditor/insurer right to recover losses from a liable third party responsible for a claim that the insurer has already paid out to their insured. In a subrogation claim, the insurer essentially becomes the victim (the insured) and pursues the responsible party (tortfeasor) for the damages they caused.
For instance, a carrier may submit a subrogation claim after paying out their insured’s medical bills resulting from a car crash if there was another clear party at fault. This protects insurers’ viability in the marketplace, allowing them to recoup losses and keep premiums low. It also serves as a deterrent for the tortfeasor, as they are still held responsible for their negligence despite the insured already having recovered.
Learn how to submit a new subrogation claim with Rathbone Group.
2. What is the subrogation process?
The subrogation process varies widely from claim to claim, as well as legally, because subrogation laws are different in each state. The general overview of the subrogation process is:
- A loss occurs. The victim (insured) submits a claim with their insurer (carrier) to cover the loss. The insurer then pays out that claim, covering the insured’s losses.
- The carrier then submits a subrogation demand letter to the person/entity responsible for the loss (tortfeasor), or that person/entity’s carrier.
- Ideally, alternate routes to subrogation recovery result in settlement. This may be mediation, arbitration or pre-suit negotiations.
- Sometimes, a subrogation lawsuit is required. These occur in the civil courts.
- A judgment is awarded (or not), after which the process of recouping the judgment, and penalties for tortfeasors who refuse to pay, varies.
Learn about Arbitration Forums for alternate dispute resolution in subrogation claims.
3. What is a waiver of subrogation?
A waiver of subrogation is a legal statement that states an insurance company will not pursue a subrogation claim against a third party. A waiver of subrogation eliminates the insurer’s ability to recover a loss caused by a third party. An insurer may choose to waive their right to subrogation for a few reasons:
- To facilitate a settlement
- Contractual requirements
- Risk allocation
Learn about a major pitfall that automatically waives the right to subrogation.
4. Are there variations in subrogation laws by state?
Yes. The laws governing insurance disputes vary by jurisdiction. Many parts of the subrogation process are determined only by case law, some by federal law, and still others by state-specific statutes. Subrogation lawyers must be knowledgeable about the subrogation laws in the relevant state, especially when it comes to procedural regulations. Jurisdictional knowledge is invaluable to proper subrogation strategy, especially in fields like rental car subrogation, where more than one state’s laws might apply.
Learn what to do when one state’s subrogation laws conflict with another’s.
5. How do you know if you have a right to subrogation?
There are several factors that determine whether a carrier has a right to pursue recovery from a third party under a subrogation theory. Factors that affect the right to subrogation include:
- State jurisdiction
- Type of subrogation claim
- Existence of a subrogation waiver
- A signed legal document that states there is no right to make a subrogation demand
- Incorrectly filing a subrogation claim
- Failing to meet relevant statutes of limitations
Outsourcing subrogation claims to experienced counsel can maximize the number of viable claims and recoverable losses, ensuring these rights are exercised to the fullest.
Learn how Rathbone Group can be your subrogation recovery advocate.
6. How is negligence defined in subrogation?
Four factors must be present to prove a party was negligent in a subrogation case:
- Duty: The party has a duty of care.
- Breach: The party breaches the duty of care.
- Cause: That breach of duty was the direct cause of damage/loss.
- Damage: An incident occurred that caused damage/loss.
Learn subrogation strategy for claims that involve contributory negligence.
7. What is comparative vs contributory fault?
Most subrogation claims operate in a fault-based system referred to as tort law. A common defense by a defendant being pursued for subrogation recovery is that fault was shared, so the liability is not solely on them. States vary in how they handle these shared-fault claims with either comparative fault/negligence or contributory fault/negligence.
- Comparative Negligence: Comparative fault looks at the role each party played in the incident and weighs the fault of each in determining an award. There are 2 types of comparative fault:
- Pure Comparative Fault: The plaintiff can subrogate the matter even if they were partially at-fault, but the award is reduced in proportion to the fault the plaintiff carries.
- Modified Comparative Fault: The plaintiff can pursue subrogation recovery only if the fault was less than half theirs. If the court determines the plaintiff is less than 50-51% at-fault for their damages, the award is still reduced in proportion with the amount of fault by the plaintiff.
- Contributory Negligence: Contributory fault says, if the defendant proves the plaintiff is even 1% responsible for the incident that caused their damages, there is no right to subrogation recovery. This fault system is less common than contributory fault but still applies in some states.
Learn about how different states apply comparative or contributory fault.
8. What is the Made Whole Doctrine?
The made whole doctrine is a concept of equity in subrogation disputes. It states that before a carrier can pursue a third party, the insured must first be “made whole”. There is no standard way in which states apply the made whole doctrine to subrogation claims, both in its definition and in the veracity of its application. Outsourcing case management of subrogation claims to an insurance law firm is the best way to ensure the best strategy is applied to the relevant state’s case law.
Learn more about the made whole doctrine in subrogation claims.
9. What is the Common Fund Doctrine?
The common fund doctrine establishes that, in subrogation litigation, if there is a common fund created where multiple parties are entitled to the recovery awarded, they also must contribute in proportion to the cost of pursuing subrogation recovery. It is most often seen in Medpay and PIP subrogation cases. Common fund is applied differently in different states, and some have not adopted it at all.
Learn best practices for maximizing subrogation recovery in common fund cases.
10. What is an example of a subrogation claim?
Let’s use a hypothetical to explain what happens in a subrogation claim, from the perspective of an automotive insurance carrier:
- Your insured is in an accident caused by another driver running a red light.
- Your insured submits claims for property damage and personal injury, which you then pay out to them.
- You then turn to the responsible party’s carrier or, if they are uninsured, the party directly with a subrogation claim.
- Should informal negotiations fail, you contract subrogation-focused counsel to find a cost-effective way to maximize subrogation recovery in a legal field.
- After that, there are several things that may happen with your subrogation claim, including mediation, arbitration, litigation, or a settlement.
- Fault is clear in this case, as the other driver ran a red light, so let’s assume you are awarded the losses you paid out to your insured. The responsible party now has 30 days to satisfy the judgment.
- Should they fail to pay the judgment, your subrogation legal team will know how to proceed. Different claims processes and jurisdictions provide varied avenues to compel the other party to satisfy the judgment.
This is a general hypothetical and not representative of the complexity of most subrogation claims.