Subrogation is a term that's unfamiliar to most people who are not part of the insurance industry. However, if there is a claim against an employer, understanding what subrogation is and how it’s used, paraticularly by insurance companies, to recover some of their costs is important and can save the employer and carrier substantial amounts of resources.

 

In layman's terms, subrogation occurs when an insurer pays an insured for a loss caused by a third party. The insurance company is then “subrogated” – or steps into the shoes of the insured – to sue that third party for the loss suffered by the insured.

 

In California, subrogation under the Labor Code is the independent right of an employer, or an employer's insurance carrier, to recover Workers’ Compensation benefits (e.g. medical, indemnity expenses) paid to the employee against a third party, by whose fault the employee has sustained an industrial injury.

 

In the event of an insurance claim or a claim paid by the carrier, “subrogation” is the process by which the employer insurance company collects money from the party at fault aka the Tortfeasor (or their insurance company) in order to recover funds that the employer or the employer’s carrier has already paid.

 

Subrogation involving Workers’ Compensation.

 

The employee and employer each have an independent cause of action for damages against a negligent third party / the Tortfeasor. The employee may simultaneously proceed against the third party for civil damages and against the employer for workers’ compensation benefits for the same injury. However, any amount that the employee recovers from the third party is subject to the employer's right of reimbursement for compensation already paid, or credit against future compensation paid to the employee or to the employee's dependents (for a death claim) on account of that injury.

 

Statutory subrogation under the Labor Code is the independent right of an employer, or an employer's insurance carrier, to recover compensation (e.g. medical and indemnity benefits) paid to the employee against a third party, by whose fault the employee has sustained an industrial injury. Generally, litigation costs, such as attorneys’ fees, payments to investigators and other vendors are not recoverable.

 

The right to seek reimbursement arises by operation of law concurrently with the liability to pay compensation to an injured employee.  Although the classic term “subrogation” is used to describe the activation of this right by the employer (‘the subrogee”) this right of action against a third party who has caused compensable injury to an employee is separate and distinct from the employee's cause of action, and is not dependent on the employee filing a lawsuit first.

 

To obtain a recovery or reimbursement, several courses of action are available to the employer or its Workers’ Compensation carrier: 1) Formal action, short of informal settlement with a negligent third party, can include an independent lawsuit by the employer in the employer's name against the third party; 2) Intervention by the employer as a plaintiff in a suit previously filed by the employee; and 3) The filing of a lien claim in a suit previously filed by the employee.

 

Aside from these options in civil court, or even in addition to them, the employer (or its carrier) may file a petition for credit in the Workers’ Compensation proceeding against future liability on the compensation case. These remedies are independent of each other, and the employer may choose any one of them.