Subrogation Made Simple: Protecting Your Settlement

PLEASE NOTE: This article is not intended to provide legal advice, and is no substitute for speaking with a licensed attorney. If you have been injured in a car accident or other motor vehicle accident and have questions, please contact an attorney. You can reach our office—the Law Office of Benjamin A. Pepper, PLLC—at (360) 733-3966 or via our website at https://bpepperlaw.com.

If you hire a personal injury lawyer like me, you may hear the word “subrogation.” More importantly, when your attorney is close to resolving your case and you are discussing how much money is going to end up in your pocket after all your bills are paid, you may be surprised to hear that some of the settlement or judgment must be paid back to your own insurance company for a portion of the money they paid in Personal Injury Protection (PIP) benefits on your behalf. That sounds unfair, right? (And this is not a trick question—it is unfair.) It is also, unfortunately, the law in Washington State. But a good personal injury attorney will make every effort to minimize the extent to which your own insurance company can cut into your recovery.

Subrogation, stated as simply as possible, is one person’s right to step into the shoes of another to collect on his or her lawful claim. In personal injury law, this comes up most often when your own insurance company has paid PIP benefits on your behalf—usually for medical bills or lost wages. When you recover money from the insurance company for the person who caused the accident, your insurance company has a right to be paid back some or all of the PIP benefits that it previously paid. The rationale is that you are collecting money from the at-fault party’s insurance company for your medical bills (which were paid by your insurance company under your PIP policy), so your insurance company in turn should recover from your settlement or judgment some or all of what it paid for your medical bills—to prevent you from receiving a “double recovery” on those medical bills. This is fantastic for insurance companies, as they get to keep all of the insurance premiums you have paid for your insurance policy, but get to be reimbursed for some or all of the benefits they paid under that policy.  

A number of lawyers, myself included, feel that this is unfair to consumers, and actually results in something like a windfall for insurance companies. Good health is priceless, so no matter how much money an injured person recovers in a personal injury settlement or judgment, he or she is never truly made whole. And then his or her insurance company gets to cut further into this imperfect remedy to recover the very benefits it promised to pay in exchange for potentially years of hefty insurance premiums.  

There are, however, several ways to stop or minimize your insurance company’s ability to dip into your monetary recovery, including:  

(1) Check the applicable law. It is vitally important to check where your insurance policy was issued and what law applies to it. If you recently moved to Washington from Texas, for example, Texas law does not provide for subrogation. Thus, you can avoid paying back any of your PIP benefits if they were paid under a Texas PIP policy.  

(2) Be sure your insurance company pays its fair share of fees and costs. When you have an attorney, your insurance company generally has to reduce the benefits it is claiming by a pro-rata portion or your attorneys’ fees and costs. In other words, the PIP company is benefiting from your attorney’s efforts to obtain a settlement or judgment for you from the at-fault party’s insurance company, so the PIP company should be paying its fair share of attorneys’ fees and costs. The formula looks like this:

(Attorneys’ Fees + Costs) x (PIP Benefits Paid / Total Settlement Amount).

This is often referred to as the “Mahler” reduction, named after a Washington State Supreme Court case called Mahler v. Szucs, 135 Wn.2d 398 (1998). There, the Court held that:

“It is grossly inequitable to expect an insured, or other claimant, in the process of protecting his own interest, to protect those of [his own insurance company] as well and still pay [his attorney] . . . out of the proceeds of the remaining funds. . . . [A] proportionate share of fees and expenses must be paid by [his insurance company] or may be withheld from its share.” (135 Wn.2d at 425)

(3) Make sure there is enough insurance coverage available from the at-fault party. Subrogation does not apply where you have not been “made whole” by the settlement or judgment. For example, if the person who caused the accident only had the Washington State-minimum policy limits of $25,000 per person, and your attorney can prove that you truly deserved at least $50,000 in damages, you have not been “made whole” by the $25,000 policy limits and should not have to pay back any of your PIP benefits to your own insurance company. This principle comes from another Washington State Supreme Court case, Thiringer v. American Motors, 91 Wn.2d 215 (1978).  

(4) Negotiate. Perhaps most importantly, subrogation is often negotiable. A good personal injury lawyer will explore negotiation of the subrogation amount, to try to put as much of the final settlement or judgment into your pocket as possible. You cannot get something if you do not ask for it, and it is important to ask early and often about subrogation and understand your rights.  

Keep in mind that these concepts do not apply in all instances, and PIP benefits are just one common example. Other entities that paid your medical bills—such as Medicare, Medicaid, your private health insurance company, the Department of Labor and Industries, and others—often have different rules for liens, subrogation, or other reimbursement of medical expenses paid. A good personal injury attorney can help you navigate these challenges to ensure that the majority of your recovery ends up in your pocket where it belongs.