Subrogation is a legal right held by most insurance carriers that allows them to legally pursue a third party that caused a loss to the insured. Generally, in most subrogation cases, an individual’s insurance company pays the claim for losses directly, then seeks reimbursement from the other party's insurance company. It’s very common in the auto industry, but also occurs in property/casualty and healthcare claims.
Since subrogation is a highly complex topic, the team at Weltman launched an educational mini-series, Subrogation at a Glance: An Overview on Recovery, which breaks down bite-sized content related to releases, no-fault, and more.
You can watch each episode by clicking on the following links:
Here’s a quick overview of the top ideas shared within each episode:
1. The who’s and what’s of releases
Often, a release can be the last obstacle to clear before getting your claim paid or closed.
When reviewing a release, here are the most common questions asked by our team at Weltman:
- Who are the parties to the release? Often, you see the subrogating attorney or law firm either listed in the body of the release or as the releaser. You may also see the subrogating carrier, the insurer, and the responsible party.
- What claims are being released? The release should mirror the demand or complaint. For instance, if you’re seeking property damage, then your release should be limited to property damage.
- Is it limited in its scope? It should refer to a specific date, location, and occurrence. It’s important to avoid open releases that are releasing all claims from the beginning of time or those that release future claims.
- Does it include indemnification language? This is an area where you can find yourself exposed to additional payouts, which you want to avoid. An indemnification agreement provides that you will protect and reimburse the released party from future legal actions. This could include defense costs and the scope can be defined by the agreement. Again, when you are agreeing to indemnify, you are agreeing to incur future damages.
2. The No-Fault Act: Recent changes and impact
When it comes to no-fault laws, it’s important to be aware that there are two types of states: 1.) a traditional tort state or 2.) a no-fault state.
In a traditional tort state, a person injured in an auto accident can sue the driver of the vehicle responsible for the accident for all of the injuries and damages incurred. However, in a no-fault state, an injured person can recover medical expenses from their respective insurance company, regardless of who is found to be at fault.
Michigan is one of the most litigious and reported no-fault states, and compared with many jurisdictions, the case law is well developed. According to MCL 500.3105(1)
, no-fault benefits generally are provided, regardless of fault, whenever a person sustains an “accidental bodily injury arising out of the ownership, operation, maintenance, or use of a motor vehicle.” The interpretation of this language has been the subject of a number of cases.
On May 30, 2019, Governor Whitmer
signed a no-fault auto insurance reform bill
. The no-fault reform changed the PIP required unlimited coverage to a PIP choice system. Michigan motorists may now select between opting out, or caps of $50,000, $250,000, $500,000, or unlimited medical coverage. In addition, there have been changes to attendant care recovery for family members, a mandated fee-based system, the expansion of excess medical expenses liable to the third-party tort teasor, and an increase in the mini-tort limit. It is important to note that there have been many changes to the regulation of the sale of insurance which imposes liability on both the insurer and the insurer’s agent.
3. How to collect on non-performing judgments
Did you know that there is an estimated $15 billion in uncollected subrogation judgments obtained each year? These judgments encompass all areas of subrogation, including automobile, fire, workers’ compensation, and health care.
With that said, the big question is: How do you convert these non-performing judgments into assets on your balance sheet? To address this challenge, you need to understand the difference between a subrogation action and a collection matter. Two things to keep in mind throughout the challenge include:
- The greater part of the court cost investment has already been made in obtaining the judgment; and
- Collections is a marathon, not a sprint.
To monetize a non-performing judgment, there are a number of legal tools available to you. These include: demand letters, judgment liens, examinations in aid of execution, wage garnishment, bank attachments, personal property levies, charging orders, creditors bill, and fraudulent transfer act.
Demand letters can be the least effective post-judgment collection technique, yet they are the most utilized. By the time the post-judgment letter goes out, the defendant would have previously received many other correspondences from the law firm and/or carrier. However, for older cases, the demand helps to re-establish that the obligation has not expired.
4. The timeline of a subrogation lawsuit
There are multiple stages to a subrogation lawsuit. They include:
- Pleadings – The majority of subrogation cases begin with a complaint (some states call it a “petition”). It’s important to understand your state's service rules so you know how a complaint can be served to the defendant. Once the service is complete, the defendant has a certain specified time to file an answer/response or file a motion to dismiss. In some cases, they may file a motion for more definite statement.
- Discovery – Discovery is a process by which either side of the case learns what witnesses or evidence would be submitted if the case were to proceed with trial. You are entitled to any relevant, non-privileged information. The most common include different forms of written discovery such as interrogatories, requests of admissions, requests for documents, and subpoenas to non-parties. Other legal tools include depositions and independent medical examinations.
- Motion practice – In a subrogation case, the most common motion practices that can be seen are motions for summary judgment, which can be filed by either party to decide a case without the need for trial. In general, the standard requires the moving party to demonstrate that there remains no genuine issue of material fact affording the non-movant to relief, and based upon the facts being viewed in a light most favorable to the non-movant, the movant is entitled to judgment. Each state has its own standards for subrogation case motions.
- Trial – Trials are either heard by a jury or a judge, the latter being called a “bench trial.” In a bench trial, there is no jury selection. Aside from that, the process is very similar for both types of trial. There are opening arguments for each side – the plaintiff and the defendant. Then, the plaintiff and defendant present their cases and have the opportunity to call rebuttal witnesses. After closing arguments, the jury or the judge reaches and reads a verdict. Because these are civil cases, not criminal, the jury does not need to reach a unanimous verdict.
- Alternative dispute resolution – The parties can also attempt to resolve the case through mediation. In a mediation, a mediator attempts to get all sides to agree to a resolution of settlement by communicating the strengths and weaknesses of the case. Another alternative means to resolution is arbitration. In arbitration, the parties jointly submit the case to an arbitration forum, where an arbitrator is appointed who makes a binding final decision.
- Post-judgment execution – Once a decision has been reached, there are a few tools at your disposal to collect on the monetary award. These include: wage garnishments, bank attachments, judgment liens, suspension of driver’s license, levy on personal property, and debtor’s examination.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.