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09.08.16   |   Insights

Personal Injury and Impact of Subrogation

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One of the key components of any personal injury action is properly addressing the impact of subrogation claims upon any proposed settlement offer from the negligent party or its insurer.

In the context of a personal injury claim, subrogation typically arises when a health insurer or self-funded plan providing health benefits pays the medical expenses either directly to the healthcare provider or its insured for injuries caused to its insured by the negligence of a third-party.  When the health insurer makes such payment, it is entitled to step into the shoes of its insured to seek reimbursement from the negligent third-party for amounts paid on behalf of the insured. 

Under the law of subrogation, the insured who brings a claim against a party for injury sustained due to negligence will have an obligation to reimburse the health insurer (subrogee) from the proceeds of any settlement or judgment obtained.  This right of subrogation generally arises from contract or statute.  As such, counsel for an injured party must consider any subrogation obligations when negotiating a settlement with the negligent party to ward against a scenario whereby a settlement is reached but the subrogee is entitled to such a portion of the settlement proceeds that the client is left with very little if anything. 

Ohio law has recently been amended providing greater leverage for an injured party’s counsel to negotiate a reduction of a subrogee’s claim.  Previously, a subrogee was entitled to full reimbursement without consideration as to whether the injured party was able to recover the full value of his/her claim for injuries.  As such, subrogees had little incentive to reduce their claims for the benefit of the injured party.  As part of the new Budget for the State of Ohio, Governor Kasich signed into law changes to Ohio Revised Code Section 2323.44 addressing the rights of subrogees which became effective on March 23, 2016.  The amended ORC 2323.44 states in part the following:

(B) Notwithstanding any contract or statutory provision to the contrary, the rights of a subrogee or any other person or entity that asserts a contractual, statutory, or common law subrogation claim against a third party or an injured party in a tort action shall be subject to both of the following:

(1) If less than the full value of the tort action is recovered for comparative negligence, diminishment due to a party’s liability under sections 2307.22 to 2307.28 of the Revised Code, or by reason of the collectability of the full value of the claim for injury, death, or loss to person resulting from limited liability insurance or any other cause, the subrogee’s or other person’s or entity’s claim shall be diminished in the same proportion as the injured party’s interest is diminished.

(2) If a dispute regarding the distribution of the recovery in the tort action arises, either party may file an action under Chapter 2721 of the Revised Code to resolve the issue of the distribution of the recovery.    

This language provides that if “less than the full value of the tort action is recovered” due to a number of listed reasons, including limited liability insurance, the subrogee’s claim is diminished in the same proportion as the injured party’s interest.  Therefore, if recovery is limited by the negligent party’s insurance policy, the injured party and subrogee are now required to share in the reduced recovery in proportion rather than requiring the injured party to solely bear burden of a limited recovery. The law also accounts for the fact that such may not always be a clear calculation and thus should a dispute arise regarding distribution of a settlement or judgment between the injured party and the subrogee, either party may file a declaratory judgment action to determine the issue of distribution.  While there will certainly be differing positions on whether this change to the law is appropriate, all counsel for injured parties must now take into consideration whether any settlement or judgment constitutes a full recovery and address claims of subrogees accordingly to determine whether a reduction based upon the new provisions are warranted.

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