Insurance Subrogation Disputes: Your Rights When Your Insurer Wants Repayment

What Is Insurance Subrogation and Why Does It Matter?

You were injured in an accident. Your health insurance paid your medical bills. You then pursued a personal injury claim against the at-fault party and received a settlement. Now your health insurer has sent you a letter demanding repayment of some or all of the medical expenses they covered.

This is called subrogation — and it is one of the most confusing and contentious areas of insurance law. Understanding subrogation, when it applies, how to dispute the amount demanded, and what protections exist under state law can save you thousands of dollars.

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Understanding Subrogation: The Basic Concept

Subrogation is the legal doctrine that allows your insurer — having paid your medical bills — to "step into your shoes" and recover those payments from the party responsible for your injury, or from your settlement with that party. The theory is that the at-fault party (or their liability insurer) should ultimately bear the cost of injuries they caused, not your health insurer.

Example: You are hit by a negligent driver. Your health insurer pays $50,000 in medical bills. You settle your personal injury claim against the driver for $150,000. Your health insurer may claim a right to recover its $50,000 from your $150,000 settlement proceeds.

Subrogation can arise in multiple insurance contexts:

• Health insurance subrogation — the most common type
• Auto insurance subrogation — when your collision insurer pays for vehicle repairs and then pursues the at-fault driver
• Workers' compensation subrogation — when your employer's WC insurer pays for work injury treatment and then pursues a negligent third party
• Disability insurance subrogation — sometimes included in disability policies

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When Can Your Insurer Exercise Subrogation?

Not all subrogation claims are valid or enforceable. Whether your insurer has a right to recover from your settlement depends on:

1. The type of insurance plan.

• ERISA-governed self-funded employer plans: These plans are subject to federal ERISA law, which often allows very broad subrogation rights, sometimes preempting (overriding) more protective state laws. The US Supreme Court's decision in Montanile v. Board of Trustees (2016) and Sereboff v. Mid Atlantic Medical Services (2006) established key ERISA subrogation rules.

• Fully-insured employer group plans and individual market plans: These plans are generally subject to both state law and contract law. State law protections are much more likely to apply.

• Medicaid: Federal law governs Medicaid subrogation. States are required to pursue third-party liability before Medicaid pays, and Medicaid has lien rights that typically are subject to state anti-lien statutes and the made-whole doctrine.

• Medicare: Medicare has subrogation rights under the Medicare Secondary Payer Act. Medicare's conditional payment recovery process is handled by the Benefits Coordination and Recovery Center (BCRC). There are mandatory reporting and reimbursement obligations for settlements.

2. Your policy language. The policy document governs the scope of the subrogation right. Some policies limit subrogation to specific circumstances; others have broad language claiming the right to full reimbursement from any recovery. Read the relevant policy clause carefully.

3. State law protections. Many states have enacted statutes and developed common law doctrines that limit insurers' subrogation recovery, particularly the made-whole doctrine.

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The Made-Whole Doctrine: Your Most Important Protection

The made-whole doctrine (also called the "make-whole rule") is the most important legal protection available to injured persons in subrogation disputes. Under this doctrine, the insurer's right to subrogation recovery does not arise until the injured person has been fully compensated for all of their losses.

In practical terms: if your total damages from an accident were $500,000 (including $50,000 in medical bills, $200,000 in lost wages, $150,000 in pain and suffering, and $100,000 in future medical costs) but you only settled for $150,000 — because the at-fault driver had insufficient insurance — then you have NOT been made whole. Under the made-whole doctrine, your insurer cannot recover anything from that $150,000 settlement because you still have uncompensated losses that far exceed your recovery.

States that strongly enforce the made-whole doctrine: Arkansas, Colorado, Georgia, Indiana, Kentucky, Louisiana, Minnesota, Montana, Nevada, North Carolina, Oregon, Tennessee, Wisconsin, and others.

States where ERISA preemption weakens state law protections: For self-funded ERISA plans, the made-whole doctrine may not apply, as federal circuit courts have split on whether ERISA preempts state made-whole rules.

How to use the made-whole doctrine:

• Calculate all of your damages (economic and non-economic, past and future)
• Compare your total damages to your total settlement amount
• If your settlement is less than your total damages, argue that you have not been made whole and that subrogation recovery is therefore not permitted or must be reduced

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The Common Fund Doctrine: Another Tool for Reducing Subrogation Claims

The common fund doctrine holds that an insurer who benefits from the injured person's lawsuit — without contributing to the costs of litigation — must share in those litigation costs. In practical terms, the insurer's subrogation recovery should be reduced proportionally by the attorney's fees and litigation costs incurred in obtaining the settlement.

Example: You recover $150,000 in a personal injury settlement after paying your attorney 33% ($50,000) in fees. Your health insurer claims a $50,000 subrogation lien. Under the common fund doctrine, the insurer's recovery should be reduced by one-third (its proportional share of litigation costs) — reducing the lien to approximately $33,333.

The common fund doctrine applies in many (but not all) states and to many (but not all) plan types. ERISA self-funded plans have argued against the common fund doctrine with mixed success across federal circuits.

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Step-by-Step: How to Dispute a Subrogation Claim

Step 1: Identify the Type of Plan

Determine whether your health insurance is:

• A self-funded ERISA employer plan (check your Summary Plan Description — it will say "self-funded" or list the plan administrator as your employer rather than the insurance company)
• A fully-insured employer group plan
• An individual market plan
• Medicare or Medicaid

This determines which laws govern the subrogation dispute.

Step 2: Calculate Your Total Damages

Work with your personal injury attorney to document all of your damages:

• Past medical expenses
• Future medical expenses
• Past lost wages and income
• Future lost earnings
• Pain and suffering (economic and non-economic)
• Property damage
• Out-of-pocket expenses

Compare this total to your settlement amount. If your damages exceed your settlement, you have a strong made-whole argument.

Step 3: Request the Subrogation Lien Documentation

Request from your insurer (or its subrogation vendor):

• A complete itemization of all payments subject to the claimed lien
• The specific policy clause or statutory provision under which subrogation is claimed
• The plan's made-whole policy (some ERISA plans include made-whole language in their own plan documents)

Step 4: Apply the Common Fund Reduction

Demand that the insurer reduce its claimed lien by the proportional attorney's fees and litigation costs. Provide documentation of your attorney's fee percentage and total costs incurred.

Step 5: Negotiate

Subrogation lien amounts are almost always negotiable. Factors that strengthen your negotiating position:

• A clear made-whole argument (total damages far exceed settlement)
• Common fund reduction
• Uncertainty about the at-fault party's liability (a contested case means the insurer's recovery was not guaranteed)
• The insurer's delay in asserting the lien

Most experienced personal injury attorneys negotiate subrogation liens as part of the settlement process. If you do not have an attorney, consider consulting one specifically for the lien negotiation.

Step 6: Legal Challenge

If the insurer refuses to negotiate a fair reduction:

• For state-regulated plans: file a complaint with your state insurance department
• For ERISA plans: consult with an ERISA attorney about bringing a claim in federal court
• For Medicaid liens: contact your state Medicaid agency and review applicable state Medicaid lien statutes

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Common Mistakes in Subrogation Disputes

Paying the lien without questioning it. Many people simply pay whatever the insurer demands, not realizing that the lien is negotiable and may be legally unenforceable.

Not calculating total damages first. You cannot assert the made-whole doctrine without knowing your full damages. Document everything before settling.

Settling the personal injury case without addressing the lien. A lien that is not resolved can follow you even after settlement. Address it as part of the settlement negotiation.

Assuming ERISA always defeats state law protections. ERISA preemption of state subrogation protections is not absolute. Recent case law has limited insurer recovery rights in certain ERISA plan situations. Consult an ERISA attorney.

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ClaimBack: Get Help Responding to Subrogation Claims

If you have received a subrogation demand letter from your insurer, ClaimBack at claimback.app can help you draft a professional response that asserts the made-whole doctrine, the common fund reduction, and any other applicable defenses. A clear, legally-grounded response letter is often the first step in successful lien negotiation.

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Conclusion

Subrogation is a legitimate insurance mechanism, but it has clear legal limits — and insurers frequently claim more than they are entitled to recover. The made-whole doctrine and the common fund doctrine are your most powerful tools for reducing or eliminating a subrogation lien. Know the type of plan you have, calculate your total damages carefully, and always negotiate the lien before paying. For assistance drafting your response to a subrogation demand, use ClaimBack at claimback.app.