Big, horrific catastrophic injuries – the stuff of nightmare – they happen and, when they do, there isn’t enough money in the world to make things right. One factor that can make a terrible situation worse is subrogation. It can make a terrible situation even worse.
Understanding Subrogation in Catastrophic Personal Injury Cases
Outside of car accidents, in incidents like slip and falls, or in the case we’re going to discuss, near drowning, catastrophic injury victims often have their care costs paid by OHIP and often through private insurance.
On average, the cost of care for a fully dependent person can exceed well over $200,000 per year. While an at-fault person or company is responsible to compensate the catastrophic injured individual for this cost, most liability insurance coverage is far below what is required – usually around $2 million, which is insufficient to cover lifelong care.
The law of subrogation allows an insurance company to recover the money it pays on behalf of a catastrophic injured person from the individual who caused the catastrophic injury. But where does that money come from? It comes from the same pot of money that the catastrophic injured person is relying on to cover their cost of care for the rest of their life. The defendant’s third-party liability policy. Being forced to share this limited pool of money can be a catastrophe in cases where there isn’t enough money to cover the loss in the first place. In some cases, the subrogated claims could conceivably eat up ALL the money in the third-party liability policy, leaving nothing for the catastrophically injured person.
How a Catastrophically Injured Person can Protect Themselves
As a catastrophically injured person with massive care costs, the bills to pay are huge. There is however a huge way to protect yourself from this devastating outcome.
The law of subrogation only allows the private insurance company or OHIP to exercise the right of subrogation where the catastrophic injured party has been fully indemnified. What does this mean? It means that the catastrophic injured party must have received full compensation. In such case it would only be fair for OHIP or the insurance company that paid part of the loss, to be reimbursed.
The catastrophically injured person can find themselves in danger during the settlement phase of her claim. Imagine a claim where the costs of care will be three million dollars but the liability insurance company only has two million dollars. Clearly there is not enough money to fully cover the loss even if all the insurance money is paid out to settle the claim. If the catastrophically injured person takes all the insurance money, they still won’t be fully indemnified but the law will consider that she has been as fully compensated as the circumstances permit.
The Risk of Settling Less Than Policy Limits
Here’s where danger arises. Liability insurers do not like paying the entire amount of their limits. They like to compromise. It’s at the heart of every settlement. Give and take.
Unfortunately, a catastrophically injured person who has settled their claim for less than the policy limits, even one dollar less than policy limits, will be seen to have left money on the table. The individual is not fully indemnified, but they have done it to themself. They made a conscious decision not to pursue all the available insurance money. In this case, OHIP or the private insurance company is allowed to exercise their subrogated interests and take some, most or all the settlement money.
Case Study: Protecting a Little Girl’s Future Care Cost
We recently represented a little girl who fell into an above ground pool and nearly drowned. She was rescued by her mother but not before sustaining a serious brain injury. She’s not currently able to talk, walk, or feed herself. She will need love, care and 24/7 for the rest of her life. Her projected cost of care will exceed $40 million.
In this case, the fence around the pool was below code allowing an inquisitive little girl to slip through. The homeowner’s insurance was clearly on the hook for the claim. The policy was for two million dollars. Not even in the same universe of what will be required to cover our client’s care costs.
A private group health insurance company paid out tens of thousands of dollars. Going forward it will be required to pay out hundreds of thousands more. OHIP is in the same position. It has and will be required to pay hundreds of thousands of dollars in medical care costs.
Both entities had the right to advance a subrogated claim. If our client had settled for a single dollar less than the full amount of the liability limits, they both would have the right to claim part of the insurance money.
For her, it was all or nothing.
We worked with the private insurance company and with OHIP. They both agreed that if the little girl got all the available insurance money, she still would not be fully indemnified and accordingly there would be no right of subrogation. She could keep her money to cover her future care costs.
Luckily in this case the little girl’s care needs were so obviously far and away in excess of what was available that settling for policy limits was a relatively straightforward matter. It’s not always this clear.
When you’re working with your lawyer to settle your claim in a case where there is a potentially large subrogated claim, or if you’re a lawyer working with a catastrophically injured client, be patient. Don’t compromise. Press for the limits. Sometimes it’s all or nothing.
