Subrogation in a personal injury claim is the right of an entity who paid on your claim to seek repayment by another person or entity either by contract or by law. In the majority of Texas personal injury cases one or more subrogation claims arise. Addressing subrogation claims is a critical part of the work a personal injury attorney performs for a client. Subrogation claims can have a significant impact on the money a client receives from the personal injury case.
Most people care about subrogation rights by third parties to their own car accident or other personal injury claim. Usually some entity, like health insurance, pays for part of your injury treatment. That entity may have a right to repayment from a settlement or judgment your personal injury attorney helps you recover. If your health insurance paid for your medical care then it is likely entitled to repayment from what you recover. In this example the health insurance plan or policy has a subrogation right or claim in your auto insurance claim.
What is subrogation for a personal injury claim in Texas?
Subrogation as a legal term is the right to stand in another person’s shoes and assert that person’s legal rights. Ok–that’s a lot of legal jargon. A simplified explanation is that the insurance coverage you buy has a duty to pay you the benefits of your coverage; but it has the right to reimbursement from a third party who caused your insurance policy to pay you in the first place.
An even more simplified example looks like this:
- A driver hits you in a car accident;
- Your personal injury lawyer files a claim on the at-fault driver’s auto insurance;
- Meanwhile you seek medical care and your health insurance plan pays for your treatment;
- Your personal injury lawyer then settles your injury claim with the at-fault driver’s auto insurance including the cost of your medical care;
- The health insurance plan has a subrogation interest in the settlement for the treatment it paid;
- Your personal injury lawyer negotiates a payment with your health insurance plan as part of paying out your settlement.
What types of subrogation claims are common in Texas personal injury claims?
The most common subrogation claims in a personal injury case involve who paid for your medical care after an accident. Your treatment for injuries is usually the biggest expense in your case. Whoever paid for it will look for repayment if possible. This may involve several entities who paid for parts of your treatment.
There are several potential subrogation claims in your Texas personal injury claim including:
- Health insurance/Medicaid/Medicare/Tricare/VA
- Workers compensation
- Medpay
- Short or long term disability plans
- Auto insurance subrogation for property damage
- Auto insurance subrogation for uninsured or underinsured motorist (UM/UIM) claims
One of the most complicated tasks your personal injury attorney will address is identifying and paying subrogation interests. A single personal injury claim may have several subrogation claims or other financial interests involved. These can include health insurance plans, hospital liens, provider liens, unpaid medical bills and your attorney’s fees and costs. Figuring out how to split up a single pot of money among all those parties is not an easy task. Incorrectly organizing payments out of a settlement or judgment can create long term problems for a client.
Subrogation claims by health insurance in personal injury claims
In Texas your injury treatment may be paid by a health care plan with a subrogation claim in your personal injury case. If you have private health insurance the laws governing the insurance policy and the policy language determine whether there is a subrogation right and what limitations exist. Your employer may provide private health insurance through a benefit plan. You may also buy it on the exchange or if self-employed. Employer-sponsored plans may be covered by the Employee Retirement Income Security Act of 1974 (known as ERISA) which involves federal law in determining subrogation rights by the health care plan.
Outside of ERISA issues state law doctrines or statutes may defeat or reduce subrogation claims. This is true in Texas as well as other states but these are state laws so a health care plan or policy established in another state may have different rules for these doctrines.
Is the health care plan an ERISA plan?
ERISA is a federal law that governs many types of employer benefit plans including health care plans. It applies to most private employers and excludes most government employers. ERISA governed plans can preempt certain Texas law provisions that would cut off or limit the health insurance plan’s subrogation right. Generally an ERISA plan will adopt language to enforce its subrogation right and limit Texas law provisions to impair that right.
To avoid these Texas law provisions (discussed below) an ERISA-governed employer must sponsor the health care plan, adopt plan language creating and enforcing its subrogation rights and be a self-funded plan. A self-funded health care plan is one in which the employer commits itself in whole or in part to fund health care claims under the plan out of its own pocket.
A plan not self-funded is one in which the employer buys a health insurance policy to cover the entire plan and the health insurance company pays the claims. A non-self-funded plan may still assert a subrogation right but it does not avoid Texas law.
Even if a plan is a self-funded ERISA plan it may work with accident victims and their personal injury lawyers on the subrogation claim to negotiate the amount due. In my experience most plans will agree to some reduction to facilitate payment.
Make whole doctrine and common fund doctrine under Texas law
A health care plan that is not a self-funded ERISA plan may be subject to the make whole doctrine and common fund doctrine under Texas law. These two legal doctrines can reduce or eliminate subrogation rights by a health care plan or policy. There are complex rules, ERISA aside, about when these apply under state law and to what extent.
Texas make whole doctrine statute
The make whole doctrine says it is unfair for a payor of medical bills under a contract to receive reimbursement unless the injury claimant is first made whole for all of their losses. Typically this applies when the at-fault driver’s auto coverage for bodily injury is low and the medical bills are high by comparison. In this case there is generally no way to make a victim whole and it is less fair for the victim to lose out than an insurance company that received premiums for the payment of bills.
This equitable legal doctrine was limited and shaped primarily by the courts up to 2014 when the Texas Legislature enacted what became Chapter 140 of the Texas Civil Practice and Remedies Code.
Prior to Chapter 140 the Texas courts said the make whole doctrine could be defeated by enforceable contractual language. Under court rulings a contract waving the make whole doctrine would allow an insurer or health care plan to recover its payments to the extent the injured party recovered on those bills. Shortly after an insurance-favorable ruling by the Supreme Court of Texas the Legislature created a statutory compromise in Chapter 140.
Chapter 140 formula
Under Chapter 140 the insurance policy or private health care plan is limited in its recovery under a statutory formula. Under the formula the policy or plan may recover the lesser of one half of the gross recovery or the total cost of benefits paid. The lesser amount is then reduced by attorney’s fees and a pro-rata share of costs–if a party is represented by an attorney.
For example, you have $50,000 in medical bills paid by health insurance but the at-fault driver only has $50,000 in bodily injury coverage. The attorney has $20,000 in fees and pro-rata costs. The lesser of the $50,000 paid or one half of the recovery is one half of the recovery or $25,000. The $25,000 reduces by the $20,000 in fees and costs so the insurance company only gets $5,000.
An important note under this chapter is that generally the payor of benefits cannot recover against a first party claim such as uninsured/underinsured motorist coverage or medical payments coverage. There are specific circumstances where that is not true.
Common fund doctrine under Texas law
The common fund doctrine says if you as a claimant incur costs to recover from a party who caused injury then anybody who shares in that recovery should pay for part of those costs. In other words, if you have to pay your health care plan back part of a settlement then they should pay their part of the attorney’s fees and costs that resulted in a settlement. Like make whole, this doctrine is an equitable or fairness doctrine.
For private health care plans that are not self-funded ERISA plans that contract out of the common fund doctrine Chapter 140 usually provides a better reduction in the plan’s subrogation interest than asking them to reduce their interest by a third for attorney’s fees and costs. Self-funded ERISA plans that contract out of the common fund doctrine are usually willing to negotiate.
Public benefits like Medicare and Medicaid generally reduce their reimbursement interest under a formula provided by statute.
Medpay, Personal Injury Protection and Subrogation Rights
In Texas you can elect to have first-party coverage for yourself and occupants in your car to help cover your out of pocket losses like medical bills and lost wages. This type of coverage comes in two forms: medical payments (medpay) or personal injury protection (PIP). These are similar forms of coverage except PIP covers more than medical payments. It covers lost wages and other out of pocket losses. Most people opt for PIP rather than medical payments.
Under Texas law medpay can subrogate for benefits paid if the contract includes a subrogation right. In that case it falls within Chapter 140 and the equitable doctrines of make whole and common fund.
PIP on the other hand generally is not allowed to subrogate as a matter of statute. Under the same statute a Texas PIP policy may subrogate against an uninsured motorist if the policy creates that right. That does not mean the PIP claim is entitled to reimbursement from a UM claim. It must pursue the uninsured motorist directly for reimbursement. (PIP may offset a UM/UIM claim by contract but this is not a subrogation or reimbursement issue.)
It is worth noting that PIP and medpay are contractual rights. An out of state driver with PIP or medpay may have a policy that permits subrogation claims or reimbursement from a settlement with the at-fault driver under that state’s law even if the wreck occurs in Texas. Generally subrogation rights under an auto policy are governed by the laws of the state in which the policy was written; however, that depends upon on what the policy language dictates.
Medicare and Medicaid liens in an accident claim
Medicaid and Medicare are public benefits paid by taxpayers which each have subrogation claims on any third party claims for injuries when one or both pay for injury-related treatment. Medicaid and Medicare have statutory liens protecting their subrogation/reimbursement rights. These liens give them special statutory powers to intervene in your case or even block payment until paid.
Both Medicaid and Medicare will reduce their claim under statutory formulas when represented by an attorney. They will consider greater reductions under certain circumstances. Neither are subject to the equitable doctrines of common fund or make whole; nor does Chapter 140 apply to either.
Medicaid and Medicare can also be difficult issues in a personal injury claim for other issues that can put continued benefits at risk. If you are a Medicaid or Medicare recipient you should definitely hire a personal injury attorney to help you navigate these issues.
Workers compensation claims subrogating personal injury claims in Texas
If injured by another driver while at work then you may have auto injury claims and a worker’s compensation claim. Worker’s compensation pays for medical care and lost wages along the way while you seek treatment so they can help relieve the financial burden of a car accident before your case settles. Like health insurance, worker’s compensation generally will have a subrogation interest in the personal injury claim.
Resolving the interplay between worker’s compensation claims and personal injury auto claims can be difficult for the inexperienced. Worker’s compensation claims can only subrogate against certain types of claims. Therefore it is important to know the limits of the worker’s compensation carrier’s rights. Those carriers usually will reduce their benefit for attorney’s fees and costs similar to common fund-type reductions.
Your duties as an injured person to entities with subrogation rights to your personal injury claim
Another important consideration in a personal injury claim is what duties you have to parties with a subrogation interest. Failing to take the right steps in a personal injury case to resolve a subrogation interest may result in:
- Delaying payment on a settlement or judgment;
- Result in undervaluing the gross or net recovery on a settlement;
- Cause your auto insurance company to cancel your policy or reject a UIM claim;
- The entity with a subrogation interest may sue you to recover on its subrogation claim;
- The health care plan or public benefit program may cancel further payment of medical bills;
- Require you to pay back the subrogation interest before paying for any additional claims;
- Creating problems at work if the subrogation interest belongs to your employer’s health care plan.
Entities with subrogation interests should generally be made aware of a claim and contacted early to advise of its interest. This will avoid surprises down the road and make sure everybody understands the likely value of that interest. Sometimes disagreement about value or whether a subrogation interest is valid arises. Ignoring these issues until the last minute can delay paying settlement funds on a case for months or even years.
Further, you may have duties to the entity with the subrogation interest to assist in determining their interest and subrogating. You may have a duty to assist them investigating the claim or to alert them of probable settlement or lawsuit. Your personal injury attorney will investigate these claims and act to protect your interests.
Other subrogation claims in a Texas car accident
Because Texas law enforces most subrogation rights under policies it can create less common situations in a personal injury claim. Probably the most common situation is when insurance companies subrogate auto claims against each other. If your auto carrier paid on your policy for a claim then it may subrogate against the at-fault party’s insurance policy.
Subrogating property damage claims
This is very common with property damage claims. If your insurance company paid for your car damage under your collision coverage it is entitled by the policy to subrogate the property damage claim against the policy for the driver who hit you. Usually insurance companies arbitrate these subrogation claims behind the scenes. If you paid a deductible for collision coverage and your insurance company recovers for 100% of the property damage claim then it will reimburse you the deductible. In this instance a subrogation claim can help you recover more money you deserve on your personal injury case.
Subrogation of uninsured/underinsured motorist claims
A less common subrogation claim is when your insurance company subrogates and sues an uninsured driver to recover on an uninsured motorist claim. Let’s say you are in a car accident with an uninsured driver and you have uninsured motorist/underinsured motorist coverage (UM/UIM).
Your UM coverage will pay you under your uninsured motorist claim up to the limits of UM coverage. Your insurer can file suit against the at-fault driver under your policy and the Texas Insurance Code. Whether the insurance company decides to pursue its subrogation claim and file a lawsuit is up to the insurer. It would likely only do so if it believes it can recover.
This is a critical consideration in any UM/UIM claim due to settlement without consent clauses in auto insurance policies. Under Texas law your UM/UIM policy may include a duty to seek the carrier’s consent before settling with the at-fault driver or that person’s insurer. Failure to obtain consent can be disastrous. If you do not first obtain consent the UIM claim may be unrecoverable. The UIM carrier has a right to pursue the at-fault driver under its subrogation rights. Your settlement will most likely extinguish that right.
Hire a Texas personal injury attorney to take care of subrogation claims
Dealing with subrogation claims is a complicated issue in nearly all injury claims. Failure to handle a subrogation claim can create many problems as discussed above. Beyond avoiding complications, an experienced personal injury attorney knows how to maneuver these rights to negotiate and satisfy subrogation claims to put the most money from your claim as possible in your pocket. Texas personal injury lawyers add value to your case not just financially by dealing with this complicated issue but by taking the stress of juggling these issues off your mind so you can focus on taking care of your health and healing from injuries.