It's not necessarily a law that requires repayment to an insurance company. Rather, it is the contract you signed with the insurance company that allows them to collect on the monies they "advanced" to you to obtain medical treatment, etc. This right of repayment is called subrogation. For specific questions on how subrogation works, I recommend you contact your attorney.
Best of luck.
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Your insurance contract likely does require you to pay the company back, but your attorney may be able to negotiate this amount down.
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The answer partly depends on whether this is an ERISA insurer, i.e., a group health insurance plan issued by a private employer. Oftentimes these liens can be negotiated. If not an Erisa plan, the right of the insurance company to recover will depend on your state's law. Perhaps also there is an issue of whether the lien is still valid given the passage of time. At any rate, your attorney has no right to give this insurer anything without your OK. Its your money, not your attorneys. At the least, if there is a dispute over who gets what, he must keep the money in his trust account or deposit it with the local clerk of court. Make sure you discuss these issues with your attorney and if you choose to not pay back the insurance company you recognize the risks of not doing so, which might include being sued by the insurer, although that's not likely given the small amount. Good luck.