Subrogation

Subrogation is the legal term when one person or entity is entitled to "stand in the shoes" of another person. Generally, subrogation arises when an insurer makes a payment to a person and that person has a claim against a third party. If the person is successful in the claim against the third party, the insurer is entitled, under the ldoctrine of subrogation, to get its money back out of the third party's payment.

For example, Joe is in auto accident. Joe's health insurer makes payments on the bills Joe incurs for his medical treatment. Joe's health insurer has the right to subrogate against any claim that Joe has against Mary,the person who caused the accident. If Joe is successful in asserting a claim against Mary, Joe's insurer is entitled to be reimbursed what it paid on Joe's medical bills out of Mary's payment to Joe.

In addition, if for some reason Joe did not pursue a claim against Mary, Joe's health insurer could sue Mary in Joe's name, asserting its right of subrogation. This is generally a contractual right that Joe agreed to when he entered into the contract. Even if Joe did not want Mary to have to pay, Joe's insurer has the right to sue Mary, regardless of Joe's desires.

In theory, subrogation seems to be fair and equitable. But, in practice, many times it is not.

For example, many insurers refuse to pay their part in the pursuit of the claim against the third party. Many times these claims can be very difficult and expensive. If, in our example above, Joe had made a claim against Ford for a defective vehicle design that caused the accident, it might have cost Joe tens of thousands of dollars to successfully pursue the claim. Yet, under the doctrine of subrogation, as declared by the Texas Supreme Court, the health insurer would not have to pay its proportionate share of the cost to obtain the payment. In other words, the health insurer can freeload on Joe's effort and gain the benefit of his effort without taking any risk or even paying it share of the cost of the effort.

So, in practice, subrogation allows insurers to freeload on an injured person's efforts and obtain full reimbursement with no risk and no cost to the insurer.