Subrogation arises in equity to ensure the payment of a debt by the one who in justice, equity, and good conscious should ultimately pay. There are two general grounds affording an insurer the right to subrogate a claim.
Subrogation arises in equity to ensure the payment of a debt by the one who in justice, equity, and good conscious should ultimately pay. There are two general grounds affording an insurer the right to subrogate a claim. First, there is the “conventional” right of subrogation, which arises under contract between the parties. Second, there is the “legal” right of subrogation, which arises by operation of law without a contract because an insurer has made a payment.
An example of the conventional right of subrogation is a direct suit by an insurer to recover for property damage paid pursuant to a policy of insurance. This suit is allowed pursuant to the applicable policy of insurance. However, when a subrogation claim involves amounts paid out by an insurer for a personal injury claim, the ability to pursue such an action can be treated as either a conventional or legal right to subrogate depending on the applicable jurisdiction. This article will address the approach taken by courts in Alabama, Arkansas, Florida, Georgia, South Carolina, and Tennessee.
Alabama law is straightforward on the issue of the right of an insured to subrogate UMBI, personal injury, and medical payments. Under Alabama law, the contractual right of subrogation for medical payments is enforceable by the insured. See Wolfe v. Alfa Mut. Ins. Co., 880 So.2d 1163 (Ala. App. 2003). In other words, Alabama courts follow the same general procedure for property subrogation – direct suit by an insurer to recover for damage paid pursuant to a policy of insurance is allowed if the applicable policy gives the insurer the right of subrogation.
Under Arkansas law, an insurer only has a lien and right of reimbursement from its insured if the insured pursues a third party tortfeasor. Daves v. Hartford Acc. & Indem. Co., 788 S.W. 2d 73 (Ark. 1990). In the event the insured pursues such a claim, the insurer has a lien or a right of reimbursement out of any third party recovery. Accordingly, for any claim involving subrogation of UMBI, personal injury, or medical payments in Arkansas, the insured must first initiate suit against the third party tortfeasor. In practice, the insurer must place its insured on notice of the insured’s interest and actively monitor whether the insured has filed suit. Failure of an insurer to properly and timely assert its lien may prevent recovery by the insurer.
Between 1971 and 1976, 16 states enacted no-fault automobile insurance laws featuring two components: (1) the mandatory purchase of first party no-fault coverage for medical benefits (usually referred to personal injury protection (“PIP”); and (2) limited third party liability for negligent drivers. Florida is one such state. Under this statutory scheme, the insurer provides coverage for medical and/or wage benefits without regard to the fault of the insured. However, the insured gives up some degree of freedom to sue the tortfeasor for pain and suffering, while the insured may be prevented from subrogating any amounts paid pursuant to the applicable policy. Under Florida’s no-fault system, there are two types of personal injury coverage: medical payments coverage (“med pay”) and PIP coverage.
Med pay coverage generally pays for medical expenses of an insured relating to an accident. Med pay will pay the insured no matter who caused the accident. Similarly, PIP coverage pays benefits for medical expenses and lost wages incurred by the insured as a result of an accident, including funeral expenses. While both types of coverage generally afford the same level of coverage, subrogation of PIP payments is strictly prohibited by F.S.A. § 627.736(3), unless the insured’s vehicle is a “commercial motor vehicle” or the insured was a pedestrian struck by a “commercial motor vehicle.” In contrast, subrogation of med pay is permitted under Florida law.
As an initial matter, PIP coverage is the most common type of coverage in Florida because all drivers are statutorily required to carry such coverage. In contrast, med pay coverage is an additional coverage most Florida drivers elect to purchase. The practical effect is that the majority of UMBI, personal injury, and/or medical payments made under a Florida car insurance policy cannot be properly subrogated. A close review of the applicable policy and a determination of the type of coverage under which payments were made is essential before filing a subrogation action in Florida to recover any damage related to personal injury.
Georgia law is similar to Florida law in that it also differentiates between the different types of coverage available to a driver. While Georgia repealed its no-fault scheme in 1991, Georgia law still distinguishes between med pay and PIP coverage. In sum, med pay coverage is an optional coverage that cannot be subrogated pursuant to O.C.G.A. § 33-24-56.1, while subrogation of PIP benefits is allowed if one of the vehicles involved weighs more than 6,500 pounds. See O.C.G.A. § 33-34-3. However, Georgia case law adds an additional layer of complexity, providing that an action to recover amounts paid out on a personal injury claim must be brought in the name of the insured, who is the real party in interest. See O.C.G.A. § 44-12-24; State Farm Mut. Auto. Ins. Co. v. Cox, 515 S.E.2d 832 (Ga. 1999).
The “Georgia approach” stems from the concept that a personal injury cannot be assigned. Accordingly, in order to properly subrogate any claim arising out of a personal injury in Georgia, the action must name the insured as a party to the suit. In application, this requires the insurer to contact its insured and have them agree to be named as a party to a subrogation action. While most policies require the insured to fully cooperate with the insurer in such instances, contacting and persuading the insured to be named as a party not only adds an additional level of hurdle, it also raises the risk that the insured cannot be located or will not cooperate. In those instances, the insurer must determine the level of importance subrogating the personal injury claim is to them, and whether they are willing to invest additional time and money into enforcing their insured’s contractual obligations.
Under South Carolina law, the right to subrogate personal injury and medical payments is relatively straightforward, as PIP and med pay cannot be subrogated. See S.C. Code § 37-77-144.
Tennessee law gives an insurer the right to subrogate medical payments if the applicable policy of insurance provides for a complete assignment of the insured’s claim against the third party tortfeasor. SeeWilson v Tenn. Farmers’ Mut. Ins. Co., 411 S.W.2d 69 (Tenn. 1966). In order to stream line the subrogation of medical payments in Tennessee, it is essential for insurers writing policies in Tennessee to ensure that the policy provides for a complete assignment of the insured’s claim against a third party tortfeasor.