Have you ever been accidentally injured, visited the emergency room for treatment and submitted your medical bills to your group health insurance company? Usually, in such a scenario, your health insurer will pay for your medical expenses, however, after making the payment, the insurer may contact you to discuss the injuries or how they occurred. It is mainly done to determine if someone else can be fully or partially blamed for the injuries. This embodies the concept of subrogation.
Subrogation means that the health insurance company is stating that they want to be reimbursed for medical expenditure that arises due to the fault of a third-party. When an insurance company pays the full compensation for any insured loss, the company has all rights to get the money spent on medical expenses back and for that, the insurer entitles to take over the legal rights of the policyholder against the third-party for the purpose of recovery of money which was paid while settling the claim. The insurer can directly proceed against the third-party direct and recover the expenses for their benefit. Also, once the claim is paid, the policyholder waives off his rights to sue the third-party for the recovery of losses or damages. However, the insurance company can sue the third-party.
When is subrogation used?
When you file a claim with your group health insurance company and another person or company is at fault, the group insurer will usually:
- Cover the expenses of insured and settle the claim
- Seek to recover the money they paid or a part of it from a third-party who is at fault in the accident
In a nutshell, subrogation is one of the ways that insurance companies can use to recover money that was paid during the claim settlement.
A very prominent question that crops in the mind of most of the policyholders is that, “Why the insured shall not be entitled to recover from both the parties?” Or, “Why an insured shall give up rights for insurers?”
The answer to both the questions is—Principle of Indemnity. According to this, the insured can’t get more than the actual amount of expenses or losses. The principle of subrogation is a method whereby the possibility of receiving more than the actual amount of loss, thereby infringing the principle of indemnity is defeated.
Extent of Subrogation
Under the Act of Subrogation, insurers can benefit only to the extent of the payment made. It means, if the insurers recover more money than the amount paid, they can retain the amount to that extent for which the payment has been made and refund the remaining amount to the policyholder. However, if the recovery amount is less than the amount of claim paid, the insurer can’t realise the balance amount from the insured.
As W.M Realty Co. was building some independent villas near Sohna Road, Gurgaon, they hired the civil engineering services of the Silicon Engineering Co, who sent one of its civil engineers, Rakesh Shah to the construction site of the latter. While walking along a temporary fence, a gust of wind lifted the chain-link construction fence off the ground, which unfortunately fell on Rakesh. He was rushed to a nearby hospital where the doctors performed an emergency operation.
Luckily, his employer, Silicon Engineering Co., was offering a group health insurance and Rakesh approached the insurer to settle medical expenses, which were around Rs 1.5 lakh. Though, the insurer settled the claim, it was found out that W.M Realty failed to provide a safe working atmosphere to its contractual employees and adequate sandbags for the feet of the fence. Also, W.M Realty Co. refused to compensate Rakesh. The insurer filed a case against W.M Realty Co. to recover the claim amount paid to Rakesh.
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