Subrogation in Workers’ Compensation
An important concept in the world of insurance is subrogation. The idea of subrogation is often confusing for even seasoned insurance professionals.
Definition of Subrogation
According to the Oxford Dictionary, the definition of subrogation is: “The substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.”
Scope and Importance
This can be a complex topic, and one that sometimes requires the assistance of a subrogation attorney. We’ll narrow the scope of this topic to the Workers’ Compensation realm. It is important to understand the basics so that companies and their agents can spot the potential for subrogation, since it may mitigate the exposure of a claim, and a corresponding hike in Workers’ Compensation premiums.
Hypothetical
Let’s illustrate the concept with a quick fact pattern:
Mrs. A owns and operates a delivery service creatively named ABC Home Delivery Services. During the course delivering goods to a client’s home, the driver, Mr. S, is bitten by the homeowner’s dog. Since this occurred while working, Mr. S files a Worker’s Compensation claim through ABC’s insurance carrier to get treatment for the injury.
Application
For the sake of simplification, let’s assume this is a compensable Workers’ Compensation claim (i.e. the claim and coverage are not in dispute), and there are no reasons to deny Mr. S any treatment or benefits. Also, we assume that the owner is financially responsible for the injury in this case (many states have strict liability for financial damages arising from dog bites). The Workers’ Compensation insurance carrier covering ABC Insurance, may seek recovery for the loss from the homeowner—likely through the client’s homeowner’s insurance. That is, the insurance carrier is subrogating against the perceived at-fault or responsible third-party. Remember, the purpose is to recover the losses associated with Mr. S’s claim by effectively substituting the at-fault party with the obligations incurred from the incident.
In practice, subrogation is important because the recovery may help lower the costs associated with claims, and potentially have less of an effect on the X-Mod and Workers’ Comp insurance premiums charged to ABC in the future.
Common Examples
Although your insurance adjuster should be trained to spot subrogation potential, sometimes they miss opportunities to seek recovery from a responsible third parties. It is incumbent on the employer and other stakeholders to lookout for common issues that may trigger potential subrogation.
Occurrences that commonly trigger subrogation potential in Workers’ Compensation:
A motor vehicle accident
A defective tool, product or machinery
An injury on a property owned by a third party
Liens
If an injured worker seeks damages from a third-party, the insurance carrier may be able to recover cost associated with the Workers’ Compensation claim. That is, in some cases, the employee may sue the third-party directly, and the insurance carrier may recovery from that action as a lien claimant. The Workers’ Compensation carrier is required to be the first dollar payer, and then attempt to recover paid amounts from the responsible party.
Unpursued Subrogation
Subrogation does not always pan-out, even if you believe there is an “iron-clad” case a responsible third-party.
Some examples:
An at fault motorist may not have insurance, and further, may not have any assets to subrogate against (i.e. judgment-proof)
The cost of litigation may outweigh the recovery—making any subrogation efforts ill-advised
There isn’t enough evidence or information to hold the responsible party liable
There may be contributory employer negligence that impacts recovery
Waivers
A clause typically seen in certain businesses (such as building contractors) contracts or insurance policies is a waiver of subrogation. In the above dog bite hypothetical, it may be bad business for a company to sue one of their clients. This agreement can be written in a business contract, or added to an insurance policy, so that the carrier does not pursue subrogation. This type of waiver is a way of protecting interested parties from liability exposure in these potentially awkward scenarios.
Conclusion
Although subrogation in Workers’ Compensation is a complex topic, employers and brokers should be able to spot recovery potential by asking whether another party may be responsible for the injury and raising those concerns with the insurance carrier. Not all subrogation matters result in a recovery; nonetheless, reviewing claims for third-party liability may lower the overall costs of the claim.