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What is Subrogation?

  • Dave Brown, Esquire
  • 01/31/2023

Subrogation is a way for an insurance company to recoup money that it has paid out in a previous claim. This concept is applicable outside of the realm of workers’ compensation, but within workers’ compensation, it is a way for the employer’s insurance company to receive part of the money that you are awarded in a case against a third-party which caused your work injury. A section of the Pennsylvania Workers’ Compensation Act sets forth the provisions concerning subrogation in a workers’ comp. case. Let the workers’ compensation attorneys PA at Pearson Koutcher Law explain.

What scenario could lead to subrogation?

For subrogation to arise, there needs to be a third-party claim — in other words, a claim by you that someone other than your employer negligently caused your work injury. For example, say you are injured by a malfunctioning piece of equipment at work. Because you were injured while doing your job, you are entitled to PA workers’ compensation benefits – money for your lost wages and payment of your medical bills. However, you could also potentially pursue a claim against the manufacturer of the equipment on the basis that its malfunction caused your injury. Let’s say you file both claims, and you eventually enter into a settlement of your workers’ comp. claim. At that point, the workers’ compensation insurance company is entitled to a subrogation lien based on the total amount of money that it paid out in your claim. If the lawyer in your third-party cases reaches a settlement in that case for you, based on a formula provided by the Pennsylvania Workers’ Compensation Act, the employer’s insurance company can “stick its hand in” and take some of this money. The rationale behind this principle is that had it not been for the negligence of the third party, you would not have been injured and the workers’ comp. insurance company would not have been required to pay out any money. Because you now have received money from this third party in the other claim, the workers’ comp. carrier should be entitled to recoup some of this money.

Can I prevent subrogation?

It depends. Your employer’s insurance company has an automatic right to subrogation under the Pennsylvania Workers’ Compensation Act. However, your workers’ comp lawyer PA– and we hope you will hire Pearson Koutcher Law – may be able to get the lawyer for the employer’s insurance company to waive, or give up, its right to subrogation. In order to agree to the waiver, however, the insurance company will likely demand that you accept less in a settlement because if it is giving up its right to subrogation, it will expect something in return – payment of a smaller workers’ comp. settlement. The advantage for you is that the lawyer in your third-party case will then not have to worry about the workers’ comp. insurance company taking any money from your settlement.
Furthermore, the lawyer in your third-party case may be able to convince the workers’ comp. insurance company to compromise, or reduce, its lien. Here is an example to illustrate how that would work. Suppose you settle your workers’ comp. case for $75,000 and the insurance company has also paid $25,000 in medical bills, bringing the total of its lien to $100,000. The lawyer in your third-party case has received an offer of $120,000 to settle. Your third-party lawyer may propose that the $120,000 is split three ways – you get $40,000, the lawyer receives $40,000 in attorneys’ fees, and the workers’ compensation carrier compromises its lien and receives $40,000. The benefit for the workers’ comp. carrier under this scenario is this will guarantee it receives $40,000. On the other hand, if the insurance company doesn’t agree to compromise its lien and insists on receiving its full lien, that will leave so little money for you, there would not be an incentive for you to accept the settlement offer. If your case then goes to an arbitration or jury trial and you lose based on a finding that the third party was not negligent, not only would you receive $0, so would the workers’ comp. carrier. Compromising its lien will ensure that the carrier, as well as you, receives something — in this hypothetical $40,000 — so it’s beneficial for all the parties.

Pearson Koutcher Law | Leading Workers’ Comp. Lawyers in Pennsylvania

Workers’ compensation cases are complex, especially when subrogation is an issue. You need a top workers’ comp lawyer PA on your side. At Pearson Koutcher Law, workers’ comp. is all we do. We will zealously represent you in your workers’ comp. claim and if you have a potential third-party case, we will refer you to a top personal injury lawyer. Please contact Pearson Koutcher Law for a free comprehensive consultation from our workers’ compensation attorneys PA today.