July 2015

How Subrogation Works

When an employee successfully sues a third party for a work-related injury in addition to collecting workers’ compensation, the employer’s workers’ compensation insurer may be able to "subrogate" the claim. Subrogation prevents an injured worker from collecting twice for the same injury.

When a work-related injury occurs, the employer’s workers’ compensation must pay for the injured workers’ medical treatment and lost time. But what happens if a third-party (someone besides the employer or a co-worker) causes or contributes to the injury? Examples include auto accidents caused by a third party’s negligence, injuries caused or contributed to by another company’s faulty product, or injuries caused by the malpractice of a doctor or healthcare provider treating a work-related injury.

Unlike the workers’ compensation system, the tort system allows an injured person who prevails in a lawsuit to receive compensation for lost wages (past, present and future), pain and suffering, property damage, loss of monetary support, loss of consortium, disfigurement and sometimes punitive damages.

When an employee collects tort damages or other settlements in addition to workers’ compensation payments, the employer’s insurer or the employer has the right to "subrogate," or claim a credit against any settlement or recovery received. Subrogation prevents an injured worker from collecting for the same injury twice. It also helps control workers’ compensation costs. If the employee chooses not to sue a third party that might have caused or contributed to his/her injuries, the employer or the employer’s insurer might sue to recover any claims it paid to the injured worker. Black’s Law Dictionary calls this kind of subrogation "...the right to step into the shoes of the party whom they compensate and sue any party whom the compensated party could have sued."

Laws governing workers’ compensation subrogation vary from state to state. Some states are "first dollar states," which give employers priority in recouping their costs out of any verdict or settlement. Some states also allow the employer to recover any increase in workers’ compensation premiums due to the injury. Other states require the full rehabilitation of the worker, or that the employee be "made whole," before the employer or insurer recover any of costs.

If third-party negligence might have played a role in one of your workers’ compensation claims, good documentation can increase the chances of a successful subrogation. This includes interviewing the victim and any witnesses, photographing the accident scene immediately following the accident and saving any evidence. If your insurer declines to subrogate, or if you self-insure for workers’ compensation, an attorney with expertise in this area can help you with the subrogation process.

Subrogation Provisions

Most workers’ compensation policies include subrogation provisions. These give the insurer the right to recover claims paid from anyone liable for an injury covered by the policy. But in some instances, an employer might not want an insurer to go after a third party for recovery of a claim. This can happen when the injury occurs on a client’s premises or when the employer has a contract with a general contractor or government entity that requires the insurer to waive its subrogation rights.