Can my health insurance company take part of my settlement?
Yes. As described above, health insurance companies who pay your medical expenses for an accident that was caused by someone else have a right to subrogation. Under California law, your insurance company may be entitled to part of your settlement if it can prove:
- the insurance company suffered a loss for which the defendant is liable;
- the claimed loss was one for which the insurance company was not primarily liable;
- the insurance company has compensated the accident victim in whole or in part for the same loss for which the defendant is primarily responsible;
- the insurance company has paid the claim of its policyholder to protect its own interest and not voluntarily;
- the insurance company has an existing cause of action against the defendant which the accident victim could have asserted for its own benefit had it not been compensated for its loss by the insurance company;
- the insurance company has paid money caused by the liability of the defendant;
- justice requires that the loss be shifted from the insurance company to the defendant; and
- the insurance company’s damages can be calculated, generally the amount paid to the accident victim.
However, there are some limits to an insurance company’s right to subrogation. The California civil code limits what an insurance company can recover from your settlement to the lesser of (1) the cost of medical services; or (2) a percentage of the total settlement. The calculations used to determine this amount can be complex, and depend on factors such as whether you were represented by an attorney.
In addition, the “Made Whole” doctrine provides that you must be made whole (compensated for your losses) before the insurance company can seek reimbursement. This typically comes up in cases where the responsible party does not have enough insurance to cover your losses. Importantly, your insurance company can require you to waive the right to be “made whole” as part of your contract.
Finally, the Common Fund Doctrine makes insurance companies pay part of the money that it recovers to your attorney if it does not have its own lawyer. In other words, because it was your California personal injury lawyer who did the work on the case to recover compensation, it is only fair that the insurance company should pay part of your attorney’s fee. The amount that they will be required to pay will depend on what percentage of the settlement or award is attributable to attorney’s fees.
For example, imagine that you received a settlement for $100,000, and your insurance company paid $25,000 in medical expenses (25% of the settlement). A standard attorney’s fee of 30% means that your lawyer will receive $33,000 in fees for their work. The insurance company is responsible for 25%, or $8,250 of the attorney’s fees. This reduces the amount of attorney’s fees that you will be required to pay by $8,250.