When the insurance carriers we defend need to assert their subrogation rights, we often find that it is helpful, and sometimes necessary, to inform the affected parties on the legal basis, the rationale, and the validity of our subrogation rights. Subrogation is the substitution of one party in the place of another for the purpose of asserting a lawful claim, demand, or right. This allows the substituting party to succeed to the rights of the other in relation to the debt or claim, and its rights and remedies.
There are generally two types of subrogation in Texas, as in other states. These can be categorized as equitable subrogation and contractual subrogation. Equitable subrogation arises by operation of law, while contractual subrogation is a result of a contract. Equitable subrogation is also termed legal subrogation, while conventional subrogation is another term for contractual subrogation.
Equitable subrogation takes place, automatically, as a matter of equity, with or without an agreement. The purpose of equitable subrogation is to force the ultimate payment of a debt by the party who, in fairness and good conscience, should pay be the one obligated to actually pay the debt. It is recognized by Texas courts as a method for the parties to avoid undue enrichment, windfalls and injustices that would otherwise occur.
There are other uses for the principle of subrogation, but it is typically recognized by the general public as an action initiated by an insurance carrier. For example, when an auto insurer pays its customer for a loss or injuries in a motor vehicle accident that is not the customer’s responsibility; the insurer will then want to pursue the party that was responsible for the accident. This means that often another insurance company is involved, as the first insurer attempts to recover the payments it made to its customer. While sometimes seen by the public as a “money grab” by one insurance carrier from another, or from a poor uninsured soul, subrogation has a huge benefit for the public at large. When insurance companies recover money they have paid on an insurance claim from a third party, it helps keep insurance premiums down.
We are frequently asked if our insurance carriers can subrogate personal injury protection (PIP) and MedPay. In Texas, minimum liability coverage, as well as PIP are mandatory. On the other hand, MedPay, or medical payments coverage, is not mandatory here. An individual may reject PIP coverage, but this must be physically signed away by the policyholder. Further, the absence of PIP coverage must be supplemented elsewhere. The two coverages are very similar in that they provide for medical bills incurred due to an accident. Both coverages will pay out regardless of who was at fault in the incident or accident. PIP coverage pays for lost wages an individual incurs while off of work. Med-Pay will not cover lost time from work. It is Med-Pay that is subject to subrogation in Texas. PIP is not subject to subrogation, under the Texas Insurance Code. If an individual is involved in a motor vehicle accident, his PIP insurance will pay the individual for his damages or injuries regardless of fault, but his insurance company will not be able to pursue the other person’s insurance company for reimbursement. Because PIP is not subject to subrogation in Texas, an individual can receive money from his PIP insurance carrier and the opposing party’s insurance carrier without being obligated to return the PIP payments.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas subrogation lawyers in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.