Recent Changes To Insurance Subrogation Rights

By Daniel P. Sullivan, Esq.

Commonly, when an insurer pays a loss under a policy, the insurer acquires the right to be “subrogated” to any cause of action the insured may have against a third person whose act caused the loss. In such circumstances, the insurance company will be entitled to recover the monies expended on behalf of its insured out of the proceeds of any settlement or judgment against such third-party. This right of reimbursement sometimes gave rise to hardships in circumstances where the amounts recovered from a tortfeasor were far outshadowed by the amounts expended by the injured party’s insurer.

However, effective January 1, 2014, non-ERISA, non-self-funded health insurance plans seeking reimbursement from third-party recoveries are now limited by statute in the amounts they may recover from their insureds. Where, for example, an insured is represented by an attorney, the insurer will be limited in its recovery to the lesser of:

  1. one-half of the covered individual’s gross recovery less attorney’s fees and procurement costs as provided by Section 140.007; or
  2. the total cost of benefits paid, provided, or assumed by the payor as a direct result of the tortious conduct of the third party less attorney’s fees and procurement costs as provided by Section 140.007.

TEX. CIV. PRAC. & REM. CODE § 140.005(c).1 Thus, this new provision of the Code puts a cap on a health plan’s claim for reimbursement when the recovery is insufficient to make the plaintiff whole and also requires a health plan to reduce its claim for reimbursement by the amount of attorneys’ fees and procurements costs.

1 Similar limitations are placed on recoveries from insureds who are not represented by counsel (See TEX. CIV. PRAC. & REM. CODE § 140.005(b)). In addition, it should be noted that the nature of the limitation differs slightly if the insurer was required to hire an attorney and assert a right to reimbursement in a Court proceeding. See generally TEX. CIV. PRAC. & REM. CODE § 140.007.

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