In order to better understand subrogation, one should understand how damages may be recovered in an automobile accident. Automobile accident claims are based in personal injury law, which is the set of laws that control how a person that has suffered physical, mental, or emotional injuries may recover for their injuries.
Personal injury losses are generally the result of some sort of accident, such as an automobile accident. If the injured person (i.e. the “plaintiff”) files a claim or lawsuit against the person who injured them (i.e. the “defendant”), then that plaintiff will generally be requesting some form of financial compensation. The requested compensation is known as compensatory damages, as it is the amount of damages that would compensate the plaintiff for the injuries they suffered because of the defendant..
Once again compensatory damages are damages that are intended to cover all of the typical losses arising from an accident. Some of the most common examples of compensatory damages include:
- The total cost to repair or replace the vehicle damaged in the accident. Importantly, damages to repair or replace a damaged vehicle might also include the cost of renting a replacement vehicle while the repair work is being done;
- The total costs of all medical care and bills, such as the costs of doctors, medicines, hospital stays, prescription costs, and/or therapy. The total cost for medical care may also include treatments that are to occur in the future;
- The total amount of monetary loss suffered by the injured party as a result of them not being able to perform their work. This amount of damages is commonly referred to as a claim for lost wages. Further, if an individual is no longer to work in a similar capacity, they may also make a claim for loss of earning capacity; and
- In some cases, an injured party can also claim compensation for their pain and suffering.
To reiterate, compensatory damages are generally awarded for the purpose of restoring the injured person or party to the position they were before the harm or loss occurred. As such, compensatory damages are only awarded in cases where damages, injuries, or losses have actually occurred and are quantifiable.
Further, state laws can vary considerably in terms of compensatory damages, so it is important to consult your local statutes regarding personal injury damages. For example, some states may place limits on compensatory damages.
It is important to note that in most personal injury cases, the defendant carries insurance that covers them for any damages that they may inflict on others. Additionally, in the case of automobile accidents, the injured party may also carry insurance to cover them for damages inflicted on them by others.
Thus, in automobile accidents subrogation claims are fairly common. In addition to automobile accidents, subrogation is also fairly common in other cases involving mortgages, surety and guaranty, tax debts, and any situation in which a legal obligation has been paid by a party other than the person who is liable to pay it.
What Is Subrogation?
In simple terms, subrogation occurs when one party makes a claim to get repaid for bills that they paid on another party’s behalf. In other words, one party has a right to pursue someone else’s claim. Typically there will be a subrogation clause within almost every single insurance contract. In legal terms, subrogation is an equitable remedy that allows a party other than a creditor to be substituted in place of a creditor in order to obtain compensation for losses from a debtor.
The party who substitutes in for the creditor then acquires all the legal rights of the creditor against the debtor and can then later recover directly from the debtor. The third party obtains these rights from the creditor by paying the initial creditor the entire amount owed to them by the debtor.
Going back to the automobile accident example, if you are harmed in an automobile accident, your insurance carrier may pay for some of the costs associated with the accident before liability is determined, minus your insurance deductible. Then if it is later determined that the other party was responsible for the accident, your insurance company may then step into your shoes legally and file a suit against the other party or their insurance carrier to recover the payment they made to you, including recovering your deductible.
Normally, the injured party would have a claim against the third party that caused them injury, but in this case the insurance company paid out that claim, and thus the claim against the third party was assigned to the insurance company. Therefore, the insurance company now has a subrogation right to go after the third party to recover the money that they paid out for the damages claim.
In many cases the insurance company will have the injured party sign a subrogation receipt which includes:
- A statement for the total amount of losses;
- A statement that details the company’s assignment for what they paid out to the injured party; and
- An agreement for the injured party to assist the company in recovering their payments for the injured party’s loss.
Importantly, if your insurance company recovers the full amount of the damages that they paid out for your claim, then they will also refund you any deductible payment that was made. If the full amount is not recovered by the insurance company, you should still receive a partial recovery of your deductible based on the proportion of what the insurance company recovered.
Additionally, any damages that are not covered by an injured party’s insurance company would still be recoverable by the injured party through a civil lawsuit against the third party that caused the damages.
What Is the Purpose of Subrogation?
Once again, the main purpose of subrogation is to allow the party who is substituted for the creditor, known as the “subrogee,” to obtain reimbursement for the payments that they have made in connection with a legal claim or debt. The original creditor in subrogation claims is called the “subrogor.” The subrogor’s right to recover from the debtor then passes to the subrogee. In other words, the subrogee steps into the shoes of the subrogor in terms of their legal rights.
Thus, subrogation is essentially similar to the legal principle of contract assignment. Contract assignment is a legal process in which an existing party to a contract wishes to transfer their contract rights and obligations to another party. In these cases, the original party who assigns their contract to another is then relieved of their contractual obligations, and their role is assumed by the party who steps in to take on the contractual responsibilities.
For example, an individual leasing a property may be able to subrogate their contract to another individual who would then be liable for the original parties contractual obligations to pay rent, utilities, etc. until the expiration of the lease.
What Are the Conditions for Subrogation?
Similar to other doctrines of equity, subrogation will be permitted based on the circumstances and facts of each individual case. This means that several conditions must be met in order for a court to approve of a subrogation agreement.
Although state laws may vary, generally conditions for subrogation include:
- A payment must be rendered by the subrogee in an effort to protect or secure their own personal interests;
- The subrogee must not act as a result of a mistake or as a volunteer;
- The subrogee must not be the party that is originally primarily liable for the debt paid;
- The debt must be paid out in its entirety; and
- The subrogation must not cause any injustice to any of the parties that are privy to the claim.
Thus, subrogation rights will not be allowed if a person has simply paid a debt that they were already obligated to pay. Also, any volunteer or stranger that interjects themselves into the debt situation will also not be granted rights under subrogation without a valid written agreement. Finally, mistakenly making payments for the debtor is also not grounds for subrogation.
Do I Need a Lawyer for Help With Subrogation Conditions?
If you have any questions regarding a subrogation claim where debts were paid on your behalf, or if you are attempting to pay off the debts for another person, it is in your best interests to consult with an experienced credit lawyer.
An experienced attorney will help you determine whether or not you can assume the various rights associated with subrogation. An attorney will also be able to help you determine whether or not another party’s subrogation claim against you is valid.
For example, in many states a health insurance company is not allowed to make a subrogation claim against the settlement for an injured party as a result of them covering the injured party’s medical damages. An experienced attorney can also represent you in court, as necessary.
