You have no legal obligations to respond to a subrogation letter. You can put the letter in the garbage and ignore additional notices, but it’s not in your best interest. Immediately dealing with a subrogation letter allows you to resolve a claim sooner than later. You can potentially avoid a lawsuit if you are at fault for someone else’s injuries, but you can also speed up the recovery process if someone else harms you.
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How you respond to a subrogation letter from an insurance company differs based on whether the letter is from your insurance provider for injuries you suffered because of another party’s negligence or whether the letter is from another carrier because you caused harm to someone else. However, before you learn about the best way to respond to a subrogation letter, you need to understand the subrogation process and the moving parts associated with it.
Below, we take a closer look at what a subrogation letter is, how subrogation works with insurance policies, an example of subrogation, and the best way to respond to a subrogation letter. We also cover waivers of subrogation and how a subrogation lawyer can help.
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What Is a Subrogation Letter?
Subrogation letters are drafted by a third party, typically an insurance company, as a tool to recover compensation on behalf of a claimant. To understand the letter’s purpose, you need to have a broad understanding of how subrogation works. The easiest way to think about subrogation is as a process where an insurance company acts on behalf of its policyholder.
An insurance provider pursues another party for damages on behalf of their policyholder, as long as they have grounds to seek compensation for damages in a civil lawsuit.
Subrogation letters from health insurance providers are the most common scenario, but auto insurance providers and other insurance providers also use subrogation. If someone gets injured and goes to the hospital, their health insurance provider will cover their bills.
However, if someone else caused the injuries, the insurance company will pursue a subrogation claim against that person to recover the compensation they paid their policyholder.
Subrogation in Your Insurance Policy
Many insurance policies contain clauses that entitle the insurance provider to seek compensation from a liable third party once they have paid claims for their policyholder. These clauses also typically prohibit the policyholder from filing a claim with the other party’s insurance or seeking damages in a lawsuit from the party. More simply, your insurance company doesn’t want you to double-dip. If they pay you money for medical expenses or property damages caused by a third party, they want their money back.
Examples of Subrogation
To help cement your understanding of subrogation, here are two examples:
Example 1
Sally has auto insurance coverage with ABC Insurance. Betty is running late for work, speeding, and runs a red light in her haste. She strikes Sally’s vehicle in the intersection, causing a collision. Sally’s insurance company, ABC Insurance, pays for the repairs on Sally’s car.
After investigating the claim, they find Betty was at fault for the accident. ABC insurance brings a subrogation claim on behalf of Sally against Betty, and her auto insurance provider, to recover the money they paid Sally to fix her car. If the insurance provider wins the claim, they must divide any extra money with Sally to cover any deductible she paid to them to get her car repaired.
Example 2
Consider the same drivers as above. This time the collision was so horrible that emergency teams who came to the accident scene had to rush Sally to the nearest hospital for treatment. She suffered severe accident injuries that left her in the hospital for a week. Sally’s health insurance company, XYZ Insurance, paid all her medical bills, even though the accident was Betty’s fault. XYZ Insurance’s next step to recover the many they paid out on behalf of Sally is to bring a claim against Betty and her auto insurance company.
Responding to a Subrogation Letter
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Regardless of which side of a subrogation claim you’re on, it’s in your best interest to respond to a subrogation letter from an insurance company. The exact way that you respond depends on the situation and whether the at-fault driver has insurance. Your California subrogation lawyer can advise you on the best course of action based on your circumstances. Here are two ways in which someone might respond to a subrogation letter:
When the at-Fault Driver Is Insured
If the driver or other party who harmed you or your property has insurance, providers often deal with subrogation claims in-house. Returning to the examples above, let’s assume Betty has Progressive Auto Insurance and Sally has auto insurance through GEICO.
Sally’s GEICO insurance paid for the repairs to her vehicle. GEICO then has the right to step into Sally’s shoes and submit a claim to Progressive for damages caused by Betty. In this situation, GEICO and Progressive can resolve the claim and send written notice to Betty and Sally.
In-house subrogation claim resolution often occurs when an investigation determines who is at fault.
This helps with vehicle repairs. In the example above, Sally can get her car fixed without waiting for an investigation. Her insurance company covers repairs upfront, but they can recover damages later from Betty’s insurance company if the investigation reveals Sally was not at fault.
The same principle applies to personal injury claims. A victim’s health insurance and/or underinsured motorist coverage will kick in to cover medical expenses, lost wages, and other damages common to accident injury claims. However, they will seek damages from the at-fault driver after the investigation is complete.
When the at-Fault Driver Is Uninsured
If the driver or other party who harmed you or your property does not have insurance, providers process subrogation claims differently. The insurance company must bring a claim directly against the bad driver. In the example above, Sally’s insurance company, GEICO, would pay for property damage and/or damages related to injuries. They would have to take direct action against Betty to recover damages because she is uninsured.
Every insurance company works a bit differently. However, the turn of events during the subrogation process goes something like this:
- GEICO’s internal legal department might send Betty a demand letter to reimburse them for Sally’s damages.
- If Betty ignores the letter or refuses to pay, GEICO could bring a lawsuit against Betty, naming Sally as the plaintiff. Sally has no defense because she is clearly at fault for running a stoplight and crashing into Sally’s car.
- Ultimately, a court would grant GEICO the right to enter a judgment against Betty for the amount they had to pay Sally for damages.
What Happens When Someone Names You in a Subrogation Claim?
If you receive a subrogation letter that notifies you that you have been named in a claim, you might feel uncertain about your next steps. Once again, the way you respond to the claim depends on whether you have insurance.
With Insurance
If you had auto insurance at the time of an accident, your insurance provider is responsible for any subrogation claims against you. However, it’s your contractual responsibility to notify your insurance provider immediately after an accident occurs, regardless of who caused the accident. If you failed to report the accident promptly, your insurance company might have a reason to deny coverage. In theory, if an insurance company notifies you of a subrogation claim against you, your insurance provider should already know about the accident.
Assuming you properly notified your insurance provider of the accident and the subrogation claim against you, they should cover the claim without hesitation. It’s standard for the insurance carrier to step in and handle the subrogation claim on your behalf. As mentioned above, there is often a good chance that the insurance companies can resolve the claim in-house. However, you should be prepared to cooperate with your provider. They might have questions about the accident and want to do their investigation to determine fault.
Without Insurance
If you receive a subrogation letter in the mail and you do not have insurance, you will need to defend the claim on your own. Most insurance providers will still seek damages from someone uninsured. They have little to lose by going after someone who is at fault. Most insurance providers send subrogation claims to a collection agency. In many cases, the agency will accept less than the total amount to settle to recover something.
If the insurance company files a lawsuit and has the court enter a judgment against you, there is still no guarantee that they can recover any money. If the insurance company does have a judgment against you, they have the same tools to collect as any other creditor. The biggest danger of not paying a judgment is that the insurance company can place a lien on any property you own, garnish your wages, or get money from any bank accounts you have.
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What Is a Waiver of Subrogation?
Most auto insurance policies have language that permits subrogation. However, this is not always the case with other types of insurance. In some cases, businesses sign contracts that include a waiver of subrogation. For example, consider Company XYZ that contracts a business to wash its windows. The company does not want to be liable if a window washer falls off a ladder or scaffolding.
In this case, waiving subrogation prevents the injured window-washer from reassigning their right to sue Company XYZ to their insurance provider. Once the window washer’s insurance company pays for injuries, it cannot sue Company XYZ. Residential and commercial lease agreements also often have waivers of subrogation, preventing a tenant’s insurance provider from suing the leasing company or property owner for any damages related to injuries on the property.
Signing a contract with a waiver can create legal problems because some insurance policies have language that prohibits policyholders from interfering with the insurance provider’s right to subrogation. Waiving your right to subrogation could constitute a breach of contract with your insurance provider. If someone has asked you to sign a waiver of subrogation, it’s best to discuss it with an experienced attorney and your insurance provider.
How Can a Subrogation Lawyer Help?
Some people mistakenly assume that accident injury and property damage claims are pretty straightforward. You file a claim with the insurance company, and they pay. Unfortunately, it’s not always that simple. Property damage and accident injury claims have many moving parts, and insurance companies pay close attention to where the money goes. Although they may willingly pay out claims to policyholders in need, they certainly will not eat a loss when their policyholder is not at fault.
In some cases, insurance companies fight vigorously to prove their policyholder is not liable for any damages. Regardless of what side of a subrogation claim you find yourself on, it’s best to consult with an attorney to ensure everything goes smoothly with a claim. However, if you have received notice that an insurance company has brought a subrogation claim against you, you must discuss your situation with an experienced subrogation lawyer.
If you have suffered injuries in a car accident or other type of accident, you should not let an insurance company act on your behalf. They have the best interests of the company in mind, not their policyholders.
A skilled personal injury attorney understands the process of subrogation and precisely what the contents of a letter you receive means. They also have the knowledge and resources to use the law to your advantage, so you have the best chances of recovering the maximum compensation possible for your injuries. Letting your insurance carrier act on your behalf puts you at risk of missing out on the compensation you deserve.
