A Closer Look At Subrogation

As explained in the introductory paragraphs, subrogation was devised to protect the innocent employer and prevent the employee from getting more than his/her fair share in remedies. It is important to note that while these principles are universally honored and the end result remains the same, the application of this methodology varies from state to state. Under some Workers’ compensation statutes, it is the employer who sues the third party and recovers the common law damages, giving the employee any remaining excess after deducting the compensation benefits. Under other statutes, it is the employee who sues the third party and the employee is responsible for reimbursing the employer for the statutory benefits. The difference, thus, lies in who sues the third party and who is responsible for the employer’s reimbursement: the employee or the employer. In either case, the parties win and lose the same amount. The employee recovers an amount equivalent to the common law damages recovered from the third party; the employer breaks even; and the third party pays in common law damages the same amount it would pay in the absence of statutory benefits.

In order to achieve these balancing interests, a subrogation statute ensures that both the employer and employee are given ample opportunity to sue the third party. The suit involving the third party is of crucial importance because the employer is reimbursed from the damages obtained from the third party.

It is important to finally note a special circumstance involving insurers where a subrogation statute provides that the employer rather than the employee is the party responsible for suing the third party. If an insurer is involved, most states provide the insurer can step inside the shoes of the employer and sue the third party. Other states go one step further and provide that the insurer alone is the proper plaintiff in the subrogation suit. The rationale is that it is the insurer who has directly paid out the statutory compensation benefits, not the employer, and therefore, it is more appropriately the insurer who should sue to be reimbursed.