What is subrogation? Let’s say you are involved in a car accident, and you seek medical treatment at a hospital, follow up with an orthopaedic doctor which results in surgery and physical therapy. Let’s say the total of those medical bills equals $100,000.00, and you have health insurance with BlueCross BlueShield of Alabama (“BlueCross"). Let’s say BlueCross pays the medical providers $60,000.00 (BlueCross has contracts with most medical providers whereby they do not have to pay the full amount of the bill – usually it is much less). If you receive money from the person who hit you, BlueCross will be entitled to SUBROGATE against your recovery, i.e.: BlueCross gets their money back from the money you get from the person who hit you and, potentially, your insurance coverage. The rationale behind this is that you should not be able to get a double recovery by getting money from BlueCross and money from the person who hit you for the same injuries.
How does this work? Assume the person operating the car that hit you has the minimum limits of $20,000.00 (there is a bill pending in the Alabama legislature to up these limits to $25,000). Let’s also assume you have underinsured motorist benefits of $20,000.00 and two cars on your policy (you can stack uninsured/underinsured motorist benefits for up to three cars on the same policy). So, you have a total of $60,000.00 available ($20,000.00 from the person who hit you and $40,000.00 from your own insurance carrier). You would technically be entitled to more money, but unless the person who hit you is wealthy, the policy limits available is most likely all you will recover.
So, you get $60,000.00, and you owe BlueCross $60,000.00. BlueCross will probably negotiate with you somewhat. Let’s say they do and reduce what you owe them by $20,000.00. Now, you have got $60,000.00 and owe BlueCross $40,000.00, and you recover $20,000.00 for your pain and suffering.
This used to not be the case. There used to be a rule called the “made whole" rule which our courts have now abolished. Under that rule, BlueCross could not subrogate against the injured person until the injured person was “made whole". In the situation where there is only $60,000.00 of insurance available for $100,000.00 in medical bills, it is clear that the person cannot be “made whole".
The Supreme Court decided to reverse the "made whole" rule in Ex Parte State Farm Fire and Casualty Co., 764 So.2d 543 (Ala. 2000). So, we are now left with the situation we have described above.
Sign up to receive a 3-part series of useful information and advice about personal injury law.