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.