Subrogation is a concept whereby the insurance policy purchased by the party who is actually at fault for an incident is responsible for paying the bills that result from said incident. It’s easy to understand in the case of a construction site accident, though the concept can apply to any number of situations where multiple policies of insurance or insured parties are at play.
If an employee of an electric company is injured when they fall off of scaffolding, they are going to file a claim with their company’s worker’s compensation insurance, who we will call Insurance Company A. Insurance Company A will pay the medical bills of the injured employee, and eventually determine the cause of the employee’s fall. When Insurance Company A determines that the scaffolding was actually assembled by a window subcontractor, Insurance Company A will typically receive an assignment from the injured employee to step in his shoes to file suit against the window subcontractor. That subcontractor will typically notify their general liability carrier, in this case Insurance Company B. Typically, Insurance Company B will resolve the suit by repaying the medical costs paid by Insurance Company A, as it was the window subcontractor that was actually at fault for the employee’s injuries. The concept allows for a third party who is responsible for relieving a part of the insurer’s financial responsibility.
A Collateral Source
Subrogation actions allow the innocent paying party, in the case above it would be the worker’s compensation insurance, to stand in the shoes of the injured party and collect the payments made from the responsible party or their insurance. As the collateral source, the innocent paying party (Insurance Company A) is entitled to the same rights and results as the injured party (the employee), but no more. For insurers looking to defend a subrogation action (Insurance Company B), any legal defenses that could be used against the victim can be used against the collateral source.
Subrogation issues cover the question of what part of a settlement or judgement must be used to repay a collateral source for payments actually already made to or on behalf of an injured party. Subrogation and Collateral Source doctrine do not allow for double recovery (meaning that the injured party, our employee, cannot get the benefit of their insurance and then an additional benefit from collecting that same amount from the responsible party as a “windfall”).