Subrogation is a term describing a legal right held by insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.
Right to Recover
A carrier has a right to recover claims paid from anyone liable for an injury covered by the policy. For instance, a worker is injured in a traffic accident and the carrier pays workers compensation benefits to him. The accident was caused by another driver. The carrier can recover the costs of the claim from that driver. This legal action is what we call "subrogating a claim."
Waiver of Subrogation
Waiver of subrogation means the carrier gives up its right to recover from others. This is usually done because the insured does business with a third party such as a government entity or general contractor, and that third party requires the insured's carrier to waive its right to subrogate against the third party. The carrier uses the Waiver of Our Right to Recover From Others Endorsement (WC 00 03 13).
If the carrier decides to charge premium for the endorsement (even on an individual risk basis), it must file that charge with the Indiana Department of Insurance. The ICRB has no charge (rate) filed on behalf of its members for the waiver. However, the standard endorsement is already filed and ready for use. The statistical code number is 0930. If the carrier makes no charge, then no filing is necessary.
Waiver in Assigned Risk
For assigned risk policies, the endorsement is available if required of the insured by contract. Plan rules (Basic Manual Rule 4-G-4) require a copy of the signed contract on file with the servicing carrier.
Blanket Waivers of Subrogation are not available in the assigned risk plan.
In Indiana, the premium charge is 5% of the manual premium developed in conjunction with the work for which the waiver is provided, or a $250 minimum premium (per Item Filing W-8015) for each waiver. This charge is explained in the NCCI Basic Manual Rule 3-A-22.
When requested by the employer or producer, the Waiver of Our Right to Recover From Others Endorsement (WC 00 03 13) will be issued within one business day* after receiving the required documentation and at least a $250 minimum premium charge per requested waiver. If additional premium is required for the endorsement and the premium is not received by the billing date, the assigned carrier must follow the standard cancellation rules and procedures for nonpayment of premium in accordance with the Indiana Worker’s Compensation Insurance Plan.
*Note: this is an Indiana higher standard in the NCCI Assigned Carrier Performance Standards, 3-Underwriting, C-2-a-(4).
For an employer that has multiple contracts with the same party during a policy year, it may be possible to charge just one waiver of subrogation minimum premium for those contracts, or the 5% of manual premium charge, whichever is greater. The servicing carrier and the ICRB would look at the situation and make a decision.
Experience Rating Revisions
We can revise up to three experience rating modifications (current and two preceding) for a given risk as a result of a carrier's successful subrogation of a claim. The definition of "current" can change dependent upon when the carrier determined (became aware of) the revised loss value due to the subrogation action. This rule wording is intended to offer relief for an employer when a carrier may report a subrogation settlement somewhat later than when it occurred.
At the point in time when we are revising up to three ratings (current and two preceding), the rule limits how far back we can go. The timeframe is capped at the five most recent rating effective dates.
Reference: ER Plan Manual Rule 4.B.2.c.
Example: The system will automatically revise the current (in effect) rating and the two prior ratings, if necessary, as well as any future ratings that may have been produced.
So, using the 2015 year as an example, the system would automatically revise the 1/1/015 (current), 1/1/14 & 1/1/13 (2 prior) and/or the 1/1/016 (future, if available). Since most unit data would only fit on 3 ratings, chances are all 4 ratings would not be revised.
If there has been a subrogation recovery, the definition of "current" rating changes to the rating in effect when the revised loss value was determined.
That information must be submitted, generally by the carrier, as NCCI or ICRB would be unaware of the prior date.
Once the prior recovery date is determined, the "current" rating is the one in effect on the date the revised value was determined.
Let's say that date was 7/9/14. Once that is established, the "current" rating now becomes the 1/1/14 with the 2 prior being the 1/1/13 and 1/1/12 ratings. Regardless of date of recovery, the revisions are limited to the 1/1/16, 1/1/15, 1/1/14, 1/1/13 & 1/1/12 (5 most recent ratings).
Data Reporting and Analysis
Detail Claim Information (DCI) does not capture information on either subrogation or liens. Statistical Plan data does have a flag for subrogation claims but it only tells us whether a claim was subject to subrogation; the loss amounts are net of subrogation but there is no information as to the dollar amount of the subrogation.
Typically, the final/closed claim will be coded as Medical only (injury type 6) since the carrier technically did not pay any indemnity benefits.
1. When carriers incur attorney fees related to a subrogation recovery, those fees are considered recovery expenses and subtracted from the total recovery and are reported as part of the claim on the unit stat report.
IC22-3-2-13 reads in part:
In actions brought by the employee or his dependents...The employer or the employer's compensation insurance carrier shall pay its pro rata share of all costs and reasonably necessary expenses in connection with asserting the third party claim...a fee of twenty-five percent (25%) if collected without suit...and a fee of thirty-three and one-third per cent (33 1/3%) if collected with suit,..."
These fees also are considered recovery expenses and subtracted from the total recovery and are reported as part of the claim on the unit stat report. Such fees are treated as "non-indemnity," and coded as Injury Type 6, triggering the 70% ERA reduction to the dollar amount used in the Experience Rating calculation.
2. When carriers incur attorney fees related to a second injury fund recovery, those fees are not considered recovery expenses and are not subtracted from the total recovery and are not reported as part of the claim on the unit stat report.
A simple example would be:
$100,000 original claim
$100,000 successful subrogation, carrier reimbursed for full amount of claim
$ 30,000 attorney fees expended to successfully subrogate claim (recovery expenses)
So, carrier would report $30,000 as the claim amount on unit statistical report after the subrogation.
Reference Statistical Plan - 2008 Edition, Rule 4-A-1-a. Subrogation.
When there has been recovery of loss due to subrogation, the amount of loss reported must be the net incurred loss. The net incurred loss is the gross incurred loss minus the amount recovered less recovery expenses. When the recovery expenses exceed the amount recovered, report the gross incurred loss instead of the net incurred loss. When the allocation of recovery to indemnity and medical is unknown, the net incurred loss must be divided between indemnity and medical losses in the same proportion as the original gross incurred indemnity and medical amounts. The type of recovery must also be reported.
Rule 4-A-1-a, Subrogation, states that the reported loss may include recovery expenses. We should not confuse Rule 4-A-1-a. Subrogation with Rule 4-D, Expenses Excluded From Losses. Rule 4-D addresses direct claims (not subrogated claims). Under Rule 4-D, attorney fees expended in a claim for the benefit of the carrier are not included as part of the cost of a claim.