Subrogation is your right (and therefore your insurance carrier’s right) to recover the cost of a paid claim if the loss was caused by that third party. Many workers’ compensation claims occur due to negligence of somebody outside of your business and your insurance carrier could choose to sue that person or entity to recover the cost of the loss. The claim cost will also be adjusted on your experience mod calculations if money is recovered from the third party.
Some contractual agreements, mostly in the construction industry, require you to waive your right of subrogation (and therefore your insurance carrier’s rights) against them in the event of a claim. Before you can waive these rights, you need to complete a form that lets your insurance company know what is happening and thay may request a copy of the contract as well. The insurance companies generally will have an extra charge associated with this endorsement to your workers compensation policy. Once approved, you can then send an updated copy of your certificate of insurance to the party requesting the waiver of subrogation through the contractual agreement. Some insurance carriers will not approve waivers of subrogation and it all depends on the details of the contract and job for which the rights are being waived. Before you decide to waive your rights of subrogation for any contract, you should understand what is at stake.
Often when an employee is injured at work there is some person or party, other than the employer or co-employee, who bears some responsibility for causing the employee’s injury. When someone from outside the employment relationship causes all or part of an employee’s work-related accident or injury, then the claim is able to be subrogated. For workers’ compensation purposes, that individual or entity is known as a third party. The presence of a third party does not excuse the employer from its obligation to pay workers’ compensation benefits if the injury occurred in the course and scope of the employee’s work related duties.
The presence of a third party does, however, change who bears ultimate responsibility for compensating the employee for his or her injury-related losses. Subrogation allows an employer paying workers’ compensation benefits to either step into the employee’s place or participate with the employee in any such lawsuit that the employee might have against the third party. The employer is allowed to participate in an attempt to get back from the third party the workers’ compensation benefits it paid to the employee. Such repayment is allowed because it is the third party who really caused the employee to suffer the loss. The employer’s recovery will be limited to the benefits it has already paid and, in some instances, to benefits it might have to pay. Any portion of an award in a lawsuit that includes amounts for losses paid by workers’ compensation is refunded to the employer or their insurance carrier asserting the subrogation claim.
Usually, employers purchase workers’ compensation insurance to cover their obligations under the workers’ compensation laws and generally the employer’s workers’ compensation insurer, who actually pays the employee benefits, asserts the subrogation claim on the employer’s behalf. Employers should co-operate with their insurer’s efforts to bring a subrogation claim as it directly affects their experience mod and therefore their future insurance premiums. Waiving your right and your insurance carrier’s right to subrogate a claim can have a tremendous effect on your future cost of insurance if a claim occurs that could have had its costs recovered through subrogation.