Subrogation is an equitable adjustment of rights that operates when a creditor or victim of loss is entitled to recover from two sources, one of which bears a primary legal responsibility. If the secondary source, the subrogee, pays the obligation, it succeeds to the rights of the party it has paid, the creditor or loss victim, called the subrogor, against the third, primarily responsible party.
Plaintiff was injured in a motor vehicle accident. He was a beneficiary of a group insurance policy issued to a union health plan and paid for by his employer. Plaintiff brought a tort action against the owner and driver of the other vehicle in the accident. The insurer intervened, asserting subrogation rights for medical expenses plaintiff recovered from defendants to the extent of the benefits it paid plaintiff. The court held that in the absence of a subrogation agreement between the insurer and the insured, an insurer that paid medical or hospital expense benefits had no right to share in the proceeds of the insured's recovery against a tortfeasor.
Does a group insurer, which provides medical and hospital expenses benefits to an insured, have a right of subrogation in a recovery by the insured against a tortfeasor for personal injuries even though the group insurance policy contains no express provision entitling the insurer to subrogation rights?
The court recognized the indemnity character of medical and hospital expense benefits, but did not feel that the principles that support subrogation under policies of property insurance would be served by extending implied rights of subrogation into the field of insurance for personal injuries. Subrogation rights are implied to prevent unwarranted compensation and to facilitate sound distribution of compensation resources. If medical expenses are isolated from the other consequences of an accident, excess compensation of an insured accident victim may appear definite and quantifiable. However, when subrogation is based on broad principles of equity and efficiency, rather than on the contract of the parties, isolation of medical expenses is artificial, and the accident victim's position should be viewed as a whole. Subrogation played no part in the bargain between insurer and insured, and in this circumstance, the courts should not intervene to adjust the rights of the parties unless all the adverse consequences of the accident have been offset.
For these reasons, the court concluded that in the absence of a subrogation agreement between the insurer and the insured, an insurer that has paid medical or hospital expense benefits has no right to share in the proceeds of the insured's recovery against a tortfeasor.