Subrogation is the right of a third party, typically a health insurance company, to recover money paid on behalf of the injured party when another party should be ultimately responsible. The Minnesota laws around subrogation are based on the theories that an injured person should not recover twice for a single injury and the insurer should not be forced to make payments because of the actions of a tortfeasor, or wrongdoer. Subrogation rights can arise out of a statute, contract, or the laws of equity.
Personal Injury v. Workers’ Compensation
In a personal injury claim, the insurer claiming a subrogation interest reduces the plaintiff’s net recovery. In contrast, in workers’ compensation claims, subrogation generally does not affect the claimant’s net recovery or total settlement. But, a claimant may be responsible for reimbursing government unemployment benefits out of recovered wage loss benefits. The work comp insurance company typically handles the subrogation interests separately and negotiates with the third parties to satisfy their interests.
Personal Health Insurance Plans
After an accident, the injured person submits their medical bills to his or her personal health insurance company for payment. The health insurance company or major medical carrier may contact the person requesting additional information surrounding the incident. The major medical insurance carrier is trying to determine who is at fault for their covered person’s injuries and thereby ultimately responsible for the payment of the medical bills.
Reducing the Amount a Third Party May Recover
In personal injury cases, while the plaintiff is still responsible for addressing subrogation interests, a plaintiff’s attorney may be able to negotiate a reduction in the amount that the third party will accept in full satisfaction of the lien or the interest in the litigation. The rules governing what the entity asserting the subrogation claim has to accept differ from entity to entity and case to case.
Minnesota’s “Made Whole Doctrine” or Full Recovery Rule
Plaintiffs may use Minnesota’s Made Whole Doctrine or Full Recovery Rule as a defense against a third-party asserting a subrogation or reimbursement right. Generally in Minnesota the injured party must be “made whole” or fully recover before subrogation is applied. See Hershey v. Physicians Health Plan of Minn. Inc., 498 N.W.2d 519 (Minn. 1993); Westendorf by Westendorf v. Stasson, 330 N.W.2d 699 (Minn. 1983).
But, the Full Recovery Rule may not always apply in circumstances where the insurance plan expressly states differently: “absent express contract terms to the contrary, subrogation will not be allowed where the insured’s total recovery is less than the insured’s actual loss.” See Medica, Inc. v. Atlantic Mut. Ins. Co., 566 N.W.2d 74, 77 (Minn. 1997). A subrogation clause in a plan in itself is not sufficient to give the insurer first priority to recovered funds. Id.
The Minnesota Made Whole Doctrine or Full Recovery Rule is a state law. Some subrogation interests are subject to federal law, not state law. For example, the Employee Retirement Income Security Act, ERISA, is a body of federal law that governs employee welfare benefit plans. An employee welfare benefit plan is a plan, fund or program that is established or maintained by an employee organization that provides employee benefits, such as life, health, or disability benefits. 29 U.S.C. § 1002(1). But, not all employee welfare benefit plans are subject to ERSIA. Certain types of plans are exempt.
Under §514(a) federal law preempts state law as they relate to employee benefit plans. However, the “Savings Clause” or §514(b)(2) retains state authority over the business of insurance, saving “any law of any state which regulates insurance, banking, or securities” 29 U.S.C. § 1144(b)(2)(A). Therefore, insurance contracts purchased for plans subject to ERISA are not preempted by § 514(a). See Metropolitan Life Insurance Company v. Massachusetts Travelers Insurance Company v. Massachusetts, 471 U.S. 724 (1985). On the other hand, ERISA employee benefits plans are not insurance; and thus, not subject to the savings clause. Pilot Life Insurance Company v. Dedeauz, 481 U.S. 41 (1987). To expound, a self-insured employee benefit plan is not insurance and therefore is excluded from the savings clause and not preempted by §514(a). Unum Life Ins. v. Ward, 426 U.S. 358 (1999).
Typically, third parties also reduce their subrogation interest by the cost of collection. The insurer recognizes that the injured party had to pay for an attorney to recover the funds from the negligent party, while the insurance company did not have to pay attorney fees to recover what the company is owed by the tortfeasor.
The knowledgeable attorneys at Meuser Law Office, P.A. will help you understand subrogation rights and interests and ensure you receive your maximum settlement. Contact Meuser Law Office, P.A. today for a free one-hour consultation of your workers’ compensation, personal injury, PERA or MSRS claim.