24 Feb Subrogation and Health Insurance Liens. What are they and why do they matter?
An ordinary dictionary will define subrogation as the substitution of one party for another. And, that’s what it is; with a few technicalities, in the legal world.
As I understand it, for our purposes, the idea of substituting one party for another in the legal world began in England, not long after the insurance industry was born. Say a merchant ship was hijacked by an enemy country at sea. The ship and cargo is lost. There was insurance, and the insurance pays out.[pullquote1 quotes=”true” variation=”coffee”]the idea of substituting one party for another in the legal world began in England[/pullquote1]A few months later, the ship is retrieved by the English navy. Who gets the cargo? The cargo’s owner or the insurance?
The insurance company’s ability to make a claim for the cargo became known as “subrogation.” Technically, the insurance had no right to even make a claim for the cargo because it did not own the cargo; however, since the insurance company paid money out to replace the cargo, it made sense for the insurance company to be able to make a claim for the cargo. So subrogation was the term used to give the insurance company a right to step into court and ask for some or all of the cargo.
Since we’re landlocked, we’re obviously not concerned about lost cargo at sea. Where the doctrine of subrogation usually comes up for us is health insurance. The typical situation is where we have an injured client. The client has health insurance which pays for some of the client’s medical expenses from the accident. The client then attempts to collect from the third-party who was responsible for the injuries.
The health insurance discovers that there might be payments from a third party and sends us a letter, notifying us that they have a right to subrogate – meaning they have a right to sue the third-party who caused the injuries – and telling us that they will claim a lien on any settlement or judgment in the amount of the medical expenses they paid. Essentially, they expect to be reimbursed for the amounts they paid for medical services related to the injury.