Why Does My Insurance Company Get to Take a Part of My Settlement?

One question many personal injury clients have when they receive a settlement is, “Why does my insurance company get to claim a part of my settlement?” After enduring the challenges of recovering from an injury, receiving compensation for medical bills, lost wages, and pain and suffering feels like a much-deserved relief. However, it’s common for insurance companies to pursue a portion of the settlement through a process called subrogation. At John J. Malm & Associates, our dedicated Illinois injury lawyers help our clients understand subrogation, how it impacts their settlement, and the legal steps available to minimize the insurance company’s claim against their settlement.

What is Subrogation?

Subrogation is a legal concept that allows an insurance company to recover payments made on behalf of its insured from a third party responsible for the loss. For example, if your health insurance covers medical expenses related to an injury caused by someone else, the insurer may seek reimbursement from the at-fault party or a portion of any settlement you receive.

Under Illinois law, subrogation rights are supported by statutes and case law. The Illinois Code of Civil Procedure (735 ILCS 5/2-403) authorizes insurers to pursue subrogation claims, either in the insured’s name or on their own behalf, to recover funds paid for the insured’s benefit. In Scholtens v. Schneider (173 Ill. 2d 375), the Illinois Supreme Court emphasized that insurers pursuing subrogation claims must share in attorney fees and litigation costs proportionally, ensuring fairness. Additionally, in Sosin v. Hayes (258 Ill. App. 3d 949), the court reaffirmed that subrogation is rooted in equity, aiming to prevent unjust enrichment of the insured while ensuring that the insurer recovers its rightful payments.

“Subrogation is often misunderstood by clients,” says John J. Malm, Naperville car accident lawyer. “Many don’t realize that their insurance company may seek reimbursement for benefits paid on their behalf. However, our responsibility as their advocates is clear—we must push back against subrogation liens wherever possible to ensure they retain as much of their settlement as they deserve.”

Subrogation ensures that financial responsibility ultimately falls on the at-fault party while protecting the rights of the insured. Consulting an attorney can help navigate subrogation claims and ensure a fair outcome.

How Does Subrogation Work?

After an accident, your health insurance company, car insurance company, or other insurance providers may pay for immediate medical bills, treatment, or rehabilitation services to ensure you receive the necessary care as soon as possible. This coverage can add up quickly, especially in cases involving serious injuries and extensive treatment. However, if you later receive a settlement from the responsible party’s insurance (or even from your own insurance in some cases), the insurance company that paid your medical bills may ask to be reimbursed for what it paid on your behalf.

Here’s how the subrogation process typically works:

1. Insurance Company Pays for Expenses: After the accident, your health or auto insurance provider covers certain expenses.
2. Settlement is Reached with the Liable Party: After negotiations or litigation, you receive a settlement or judgment from the party responsible for your injuries.
3. Insurance Company Asserts Its Right to a Portion of the Settlement: Based on the payments made on your behalf, the insurance company claims its right to reimbursement from your settlement.
4. Negotiation and Reduction of Liens: Depending on the circumstances, there may be an opportunity to negotiate the lien or subrogation amount the insurance company is claiming.

At John J. Malm & Associates, our Naperville car accident attorneys have successfully negotiated with insurance companies to reduce the subrogation claim and help our clients keep as much of their settlement as possible.

Why is Subrogation Allowed?

Subrogation is allowed primarily for two reasons:

1. To Prevent “Double Recovery”: Subrogation ensures that a person doesn’t “double-dip” by getting compensated twice for the same damages—first from their insurance and then again from the settlement. The legal rationale is that if an injured party has already had medical expenses paid by their insurance, allowing them to keep the full settlement without reimbursing the insurer would constitute double recovery.
2. Cost Control for Insurance Companies: Subrogation helps insurance companies manage costs. By recouping funds from settlements, insurance companies can continue to provide coverage and pay out future claims. In theory, this keeps premium costs lower for all policyholders.

What Types of Insurance Commonly Pursue Subrogation Claims?

Several types of insurance may pursue subrogation claims against a personal injury settlement, including:

• Health Insurance: Health insurers frequently pursue subrogation claims for any medical expenses they covered related to the injury. This is true whether you have private insurance, an employer-sponsored plan, or even certain government health benefits (such as Medicaid or Medicare).
• Auto Insurance: If your auto insurance paid for medical expenses under a MedPay or Personal Injury Protection (PIP) policy, it may have a right to reimbursement from your settlement.
• Workers’ Compensation Insurance: If you were injured at work and received workers’ compensation benefits, the workers’ compensation insurer may claim a lien against any settlement you receive from a third party. Workers’ compensation subrogation is particularly common and is often subject to specific state regulations.

Each insurance type has its own subrogation rules, requirements, and limits, which vary depending on the policy terms and state law. It is important to consult with an experienced Illinois personal injury attorney to verify the rules and requirements, so they can negotiate on your behalf to maximize your recovery.

Legal Basis for Subrogation: Policy Terms and State Law

The right of an insurance company to pursue subrogation is typically outlined in the terms of the policy you hold with them. Most insurance policies include a subrogation clause in their contract that gives the insurer the right to recover payments from a settlement. When you sign up for an insurance policy, you agree to these terms, including subrogation rights.

Beyond the policy language, state law can also impact subrogation. Some states have laws regulating subrogation rights to ensure that injured parties retain a fair portion of their compensation. Illinois law, for instance, follows the “common fund doctrine,” which requires the insurance company to share in the costs of obtaining the settlement, such as attorney fees and litigation expenses.

How Subrogation Affects Your Settlement Amount

If your insurance company asserts a subrogation claim, it will reduce the amount of money you receive from your settlement. For example, if you settled for $100,000 and your health insurance paid $30,000 in medical bills, it could claim that $30,000 from your settlement. However, this amount often can be negotiated down, especially if you had to incur legal fees to obtain the settlement.

At John J. Malm & Associates, our car accident attorneys in Naperville and St. Charles negotiate with insurance companies to reduce their subrogation claims. Our goal is to maximize the net settlement you receive and ensure you are fairly compensated for your losses, pain, and suffering.

How John J. Malm & Associates Can Help Reduce the Insurance Company’s Claim on Your Settlement

Reducing an insurance company’s subrogation claim requires negotiation, legal knowledge, and, in many cases, an understanding of state-specific subrogation rules. At John J. Malm & Associates, we employ several strategies to reduce the impact of subrogation claims on your settlement:

1. Negotiating Reduced Subrogation Liens: Many insurance companies are willing to negotiate the subrogation amount, especially when legal fees are involved. We work with insurers to reduce their claim, arguing that our client should not have to bear the entire burden of legal costs alone.
2. Applying the Common Fund Doctrine: Under Illinois’ common fund doctrine, insurers are often required to contribute to the legal fees and costs associated with obtaining the settlement. This means that if your attorney helped create the settlement fund, the insurance company may be required to reduce its lien proportionately.
3. Analyzing Medical Payments: We carefully review each medical expense the insurance company claims to ensure it directly relates to your injury and that it is justified. Sometimes, expenses claimed by the insurance company may not be related to your accident, and we can dispute those items to lower the claim.

Our goal is to put as much of your settlement into your hands as possible, ensuring you receive fair compensation after medical expenses, lost wages, and pain and suffering.

Do All Insurance Companies Have the Right to Subrogation?

Not all insurance claims result in subrogation. The type of insurance policy, state regulations, and specific case circumstances all determine whether subrogation applies. For instance, many policies do not allow for subrogation in uninsured motorist (UM) cases.

It’s also possible that your insurance policy may not include a subrogation clause, though this is rare in health, auto, and workers’ compensation insurance.

Working with John J. Malm & Associates to Protect Your Personal Injury Settlement

The subrogation process can feel frustrating, especially when you’ve already endured physical pain, financial strain, and emotional distress from your injury. At John J. Malm & Associates, we work diligently to protect your settlement from excessive subrogation claims and maximize the compensation you ultimately receive.

If you have questions about subrogation, insurance claims, or your personal injury case, our top-rated Illinois personal injury attorneys are here to help. Contact our offices in Naperville or St. Charles to schedule a free consultation and learn more about how we can advocate for your best interests, navigate subrogation claims, and ensure you retain the compensation you deserve.