Subrogation is a legal term which means that the insurance company of a person who was injured in an accident is entitled to receive a part of the settlement money paid to the victim. As a legal principle, subrogation is designed to prevent a plaintiff from collecting a compensation twice for the same damages suffered.
Let’s analyze an example. Suppose that a person suffers an accident as a result of another person’s negligence and suffers medical injuries. The victim has health insurance and seeks medical treatment to which the insurance company is billed. As per the insurance policy, the individual pays 20% of the total while the insurance company pays for the remaining 80%. The victim then sues the negligent party and the case is settled with an award equal to or greater than the sum of the entire amount of the medical expenses. In a way, the victim of the accident is compensated twice for his or her medical damages; once by the health insurance company that paid 80% and once by defendant. Subrogation is the process the insurance company uses to reclaim the 80% it spent on medical expenses due to the accident.
The intention of this law was to protect insurance companies from damages from an accident caused by the negligence of a party that is not their policyholder. Unfortunately this process has led to situations where the victim of the accident receives less than the insurer from the settlement and is also forced to cover the legal expenses. Sometimes this leaves little or nothing for the victim to compensate for the harm suffered.
In August 2010, the legislators of Colorado passed a bill meant to restrict the right to subrogation of insurance companies. Here are the main modifications to the HB 10-1168 bill:
- The insurance company’s right to subrogation is ripe (can be enforced) only after the injured person is made whole. In every day terms, this means that the victim has received full compensation for his or her damages.
- The subrogation amount is now limited to the actual amount paid by the insurer to the victim. Under no circumstance can the insurer be entitled to receive more from compensation that it actually paid.
- If the victim recovers the maximum amount of the insurance policy, then the victim gets the benefits of a presumption that he has not been “made whole” and there is no right to subrogation by the insurance company.
These changes are intended to increase fairness for all injured persons seeking compensation for damages. The bill strengthens their position in relation with their insurer and guarantees that they receive full compensation and a fair treatment in front of the law.