Understanding Subrogation and Lien Rights in the State of Washington

Frequently, when settlement discussions are proceeding regarding a car or vehicle accident case, those who are injured focus on how much they will receive in a settlement after attorneys’ fees and costs are paid.  A critical – and often overlooked – factor in settlement negotiations is understanding and taking into account the lien that insurance companies will have on the settlement proceeds (or the judgment, if the case goes to trial).  This page discusses the lien and subrogation rights of insurance companies, and also Medicare, that must be taken into account before a settlement is approved.

What Lien Rights do Insurance Companies Have in Washington for Car Crash and Personal Injury Cases?

In Washington, when an insurance company pays for medical costs or vehicle repair or replacement for injuries and damages arising from a vehicle crash, the insurance company will have what is known as a “lien” with respect to any future proceeds that may be recovered from those responsible for causing injury or damages.[1]  Medicare will similarly have a lien to the extent of medical and related costs that it has paid. By accepting or allowing an insurance company or Medicare to make such payments, an injury victim is implicitly agreeing to such lien – there is no additional formal acknowledgment that is required.

Liens and Subrogation

The lien itself is a legal right that the insurance companies have to be repaid a specific amount of money that may be recovered from the defendant, either from a settlement or from a jury verdict.  This amount of money to which they may be entitled is usually equal to the amount that they paid to medical providers (such as hospitals) for the care of the injury victim, or for replacing a damaged or totaled vehicle.[1]

When an insurance company pays such money, the insurance company will be “subrogated” to the rights of the injury victim with respect to such payments.  While this may sound complicated, what this means is that the insurance company legally has the right to “step into the shoes” of the injury victim with respect to seeking repayment for the amounts that they have paid.

Seeking to Reduce Insurance Company Liens (and Help Injury Victims Keep More Settlement or Verdict Proceeds)

After an injury has occurred, both the insurance company and the injury victim will have common goals – they both want to recover money from the defendant who caused the injury and damages.  An injury victim will want to recover for matters such as pain and suffering, and lost wages, while the insurance company will want to recover for money that it has paid, such as medical expenses and the costs to repair or replace vehicles.

Typically, it will be the injury victim who initiates a claim or lawsuit against the defendant for all costs and damages incurred, including medical costs and vehicle damage.  Lawyers will then represent the injury victim in seeking to prove and recover compensation.  Insurance companies for the injury victim will usually be on the sidelines with respect to the ensuing litigation, hoping to ultimately recover for the amount of their lien (the amounts that they have paid) when money is received by the injury victim for a settlement or successful trial verdict.

How Much of the Lien Will Need to be Repaid?  How an Experienced Attorney Can Work to Seek More Money for Clients

Insurance companies naturally want to recover the full amount of their lien.  For example, if they have paid $30,000 in medical costs, they will want to recover such amount.

The reality is that defendants are highly unlikely to unilaterally make such payment.  Instead, such payment is usually recovered only after attorneys have spent considerable time, and invested substantial costs, in proving the cases of their clients, and in negotiating a settlement or prevailing at trial.  The attorneys will be entitled to be compensated for their time and effort, and it’s not fair that insurance companies should get paid without contributing for the payment of attorneys’ fees.

In this example, if the attorneys’ fee is one-third for a settlement, the attorneys would be entitled to a fee of $10,000.  The insurance company would have a lien of $430,000; however, the settlement portion for medical expenses is only $430,000.  Thus, the settlement is not sufficient to pay both the insurance company and attorneys’ fees.

The fair way to allocate the proceeds would be for the insurance company to agree to reduce its lien to $20,000 to take into account compensation for the attorneys for securing the payment from the defendants.  (The injury victim will then come out “whole” in this example, as all of their medical expenses will have been paid.  The injury victim would still be entitled to other damages, such as pain and suffering, lost wages, etc.).

As experienced Seattle injury lawyers, one of our jobs is to seek lien reductions on behalf of our clients.  The more that such liens can be reduced, the more money that our client is entitled to keep.

Medicare Liens

Liens are not just limited to insurance companies.  The federal government – through Medicare – will also have a statutory lien with respect to payments that it has made.  Fortunately, under federal law, Medicare offers an offset for a proportionate amount of “procurement” costs, which are the necessary costs incurred in obtaining a settlement or judgement (such as attorneys’ fees and other costs).

As a result, if the medical costs paid by Medicare amount to $30,000, and the attorneys’ fees for a settlement are one-third, then $10,000 would go to the attorneys and $20,000 of this amount would be paid to Medicare.  (The $30,000 for medical costs originally would be paid entirely by Medicare, but Medicare would only be entitled to recover $20,000 of such amount).  Once a final determination is made with respect to the amount of the Medicare lien (which is a separate process), the amount owing to Medicare must be paid within 60 days; otherwise, the amount owed is sent to the US. Treasury Department, which then has the authority to withhold social security payments until the lien amount has been paid.

A Final Word About Liens and Subrogation

Liens and subrogation are complex issues in Washington.  A personal injury claim in which a third-party has paid for medical bills, vehicle costs, or even short or long-term disability insurance should never be settled without experienced legal counsel understanding the full ramifications of potential liens and what amount may need to be repaid.  At Ressler & Tesh, we have recovered tens of millions of dollars for injured clients and the families who have lost a loved one, and we fight on behalf of our clients in helping them keep the maximum amount of money to which they are entitled.

[1] The provisions allowing the insurance company to have a lien are set forth in the terms of the policy.

[2] The insurance company’s lien may be reduced to account for associated attorneys’ fees and costs, and (in some insurance plans) reimbursement for PIP payments.

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