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Insurance Liens and Subrogation

Say you are hurt in a car accident. The driver who hit you is completely at fault. You have the police report saying he/she is at fault and all of your medical records. You either hire an attorney or deal with the at-fault driver’s insurance company directly. Then, when you’re trying to resolve your claim (either through a settlement or with litigation), you get some official looking documents in the mail. One is a health prover lien against your settlement and the other is a subrogation claim by your own insurance company. What are these?

Let’s first talk about the lien and then the subrogation.

A lien is a claim or charge on property. What often occurs in scenarios as the one spelled out above is that your healthcare providers who treated you after the accident then claims a right to be reimbursed for their services out of your insurance settlement or court judgment. They do this in the form of a lien. To be effective, the lien has to meet specific requirements in Missouri Statutory Law (e.g., sent to the right person/entity, certified, etc.). If these requirements are not met, the lien is ineffective and thus does not need to be honored.

Under Missouri Law, once a lien has been properly effectuated, a health care provider (generally a hospital) is entitled to be paid the amount of its lien or as much of the lien as can be paid out of 50 percent of the amount due the “patient under any final judgment or compromise or settlement agreement after [first] paying the amount of the attorneys’ liens, federal and Missouri workers’ compensation liens, and any other prior liens” having priority. As you can see, then, the Missouri legislature has placed a cap on how much can be taken out with a lien, so don’t be fooled and pay out more than need be.

Now what about subrogation? Subrogation is the substitution of one person in the place of another with reference to a claim, demand or right. The imagery attorneys and judges consistently use to describe this legal theory is that subrogation is essentially where a third party “steps into the shoes” of another party, and is able to use that person’s legal claims and rights. Applying this theory to the above scenario, say your health insurance company covers your expenses after your car accident. Under your health insurance agreement, there is generally a subrogation clause. As such, the health insurance company will operate under this clause and “step into your shoes” to recover some of the money it had to shell out to pay for your health expenses. The reasoning is that the health insurance company is also wronged, and thus should be able to recover.

Under Missouri Law, subrogation clauses are void and impermissible. Legally speaking, a health care insurance company may not be subrogated to its insured’s right to recover from a tortfeasor. It is, essentially, a company recovering out of an individual’s legal remedy, and thus is against the public policy in Missouri.

There are, however, exceptions to this rule. For instance, most ERISA subrogation claims (those made under a certain federal law) are generally permissible in Missouri; moreover, many public employees who receive health benefits from their employer may legally experience subrogation.

As you can see from the above, given the complex terminology, and intricate contract provisions in play, it is important to consult with an attorney.

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