What Is Subrogation?

The workers’ compensation system was established in 1911 by the California legislature to help provide relief for workers who were injured in the course and scope of their employment.  The system is what is called a “no fault” system, which means that the employee is not required to prove that the injury was the fault of the employer in order to recover for his or her injuries and ongoing disabilities.  In some cases, however, a third party’s actions or inactions may have contributed to the employee’s injury.  Under California Labor Code § 3850, et seq., an employer or the employer’s insurance company may exercise their right to subrogation in this instance.  Subrogation is the right of the employer and/or the insurance company to recover the amount paid under the workers’ compensation suit against a third party.  There are several ways that an employer may use subrogation to recover these expenses.

An employee may seek to recover against a third party whose negligent or even intentional conduct contributed to the accident causing the injury.  An employee may seek to recover, for example, from the equipment manufacturer for faulty safety systems or may sue a negligent driver for a car accident occurring during the course of the employee’s work.  If an employee files his or her own lawsuit against such a third party, an employer has a couple of options.  One option is to serve a Notice of Lien on all of the parties in the lawsuit.  This type of lien is considered a first lien against any recovery obtained by the injured employee.  This means that if the employee obtains a judgment from the lawsuit against the third party, the lien will be paid right after the employee’s attorney fees and legal expenses are paid.  Another option is to intervene in the law suit.  This means that your business will become a party to the lawsuit and will participate in the litigation.

If the employee does not decide to file his or her own lawsuit, your business or your workers’ compensation insurance company still have the independent right to file a lawsuit against a third party.  You should note that the statute of limitations will apply to your business, just as it would apply to the right of the employee to bring his or her own law suit.

If you have questions about subrogation or workers’ compensation, let us answer them.  Call us today for a consultation.

Subrogation in Workers’ Compensation

Before the current system of workers’ compensation was established, if an employee sustained a work-related injury, he or she would be left with few options. One option could be to sue their employer for the employer’s portion of responsibility for the injury. With workers’ compensation and workers’ compensation insurance, this is typically no longer necessary. Also along with workers’ compensation has come subrogation.

 

Subrogation is a legal term meaning to substitute one person in the place of another for the payment of a debt. The reason subrogation exists is to compel one party to pay a debt instead of another person. This sounds complicated, but on the most basic level is what happens with workers’ compensation insurance. In such a case, the employer is paid his or her lawful debt, i.e. the cost of the injury or disability, by the workers’ compensation insurance company. In the system of workers’ compensation, the insurer may not then sue the employer due to what is called a “waiver of subrogation.”  A waiver of subrogation clause is a common element of any contract between a business and the workers’ compensation insurance company. This clause means that if it is determined the employer was responsible for the employee’s injuries, an insurer may not sue the employer for the cost of the benefits paid out to the employee. At its core, it means an insurance company is foregoing a right it otherwise would have had to try to collect the cost of the benefits it paid out from a third party, including the employer, even if the third party was responsible for the injury. However, employers should be cautious. There could be exceptions written into your insurance policy wherein this waiver does not cover certain situations. As with any contract, you and your attorney should carefully review the insurance policy before committing.

 

A waiver of subrogation clause could also extend to third parties, preventing an insurance company from suing a third-party who may have been responsible, in whole or in part, for the employee’s work-related injury. In other industries, the absence of such a clause is common, but employers in workers’ compensation cases are typically protected from being sued for recovery by their own insurance companies.

 

If you have questions about subrogation clauses and how they will impact your business, contact me today at (714) 516-8188. I look forward to answering your questions and discussing your business.

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