Your task as an employer is to ensure a safe workplace by protecting your employees from work-related injuries and illnesses. Thus, as long as you make sure that the working conditions do not endanger your workers’ health, you reduce the risk of Workers’ Compensation (WC) claims. However, despite all the efforts, there is always a chance that an employee may sustain an illness or injury at work. So, how exactly does subrogation fit into this puzzle?
Usually, Workers’ Compensation claims involve only your firm and the injured or ill worker. But what if the injury or illness is due to the negative actions, or lack thereof of a third party, for example, a contractor, another company, or a member of the public? In such cases, you and the insurance provider can legally request the third party to cover all expenses related to the WC claim. This is what subrogation means, and it can serve two purposes.
First, it can help hold the other organization accountable for their actions or inaction. Second, subrogation helps you as the employer to avoid any penalties that may arise because of these faults. What is most important here is that subrogation helps to ensure that your employee receives adequate benefits for the illness or injury sustained. So, when do you need subrogation? And what effect does it have on WC claims?
When Do You Need Subrogation?
Subrogation involves all cases when the claim originates from a third party. In general, you can identify the potential for a subrogation claim at the beginning of the Workers’ Compensation claim process. For the most part, there are three types of WC claims that might necessitate subrogation.
First, in a motor vehicle accident, one of your employees suffers injuries due to the careless actions of a third party.
Second, when one of your employees is working offsite for another entity and sustains an injury due to an accident. For example, when an employee slips and falls at that offsite location.
Third, in a machine-related incident. This occurs if one of your employees is injured working on third-party owned machinery.
Once the insurance provider receives the subrogation notice, they will determine who is culpable and assign overall claim compensability. To accomplish this, they will launch an investigation to analyze the relevant information. This could include photos, videos, medical records, incident reports and witness statements. It’s possible the investigation may also extend out to include maintenance and repair schedules of equipment involved in the claim, as well as any agreements or contracts that were in place that relate to liability and compensation. Once finalized, the details of the subrogation are provided to the third party or their insurance provider. This will include details of what the third-party expenses are.
Oftentimes, the final amount that the third party is responsible for depends on the time and the way in which your employee recovers from their injury or illness. Because of this, the process of subrogation may go slowly. Put simply, the Workers’ Compensation claim needs to be settled for the subrogation amount to be known.
Moreover, bear in mind that your worker may wish to sue the third party on their own for becoming ill or injured. If they do, they need to clearly discuss the lawsuit’s details with you and your insurance provider. Should your employee receive compensation from the third party as a result of a personal lawsuit, the awarded amount needs to be deducted from the subrogation sum determined by your insurance company. If not, the third party will be paying too much to the claim. Your employee in turn would be receiving extra benefits in addition to what they gained from their personal suit.
Giving Up the Right to Subrogate
It is fairly common practice for third party organizations or contractors to request that you forego your right to subrogate them in case they are culpable for a worker’s injury or illness. This in turn aids in reducing the potential for future conflicts. So, waivers of subrogation are often part of business contracts. For instance, before your employee could start working at the other firm’s job site, you may be required to sign a subrogation waiver. Hence, this waiver provides an opportunity for the third party to minimize liability and reduce insurance expenses.
In most cases, your carrier may allow you to sign waivers of subrogation if a contract depends on your doing so. However, signing the waiver may result in you having higher premiums. This is because now your insurance provider must carry the liability that may result from potential third party claims.
Bear in mind that laws on subrogation waivers vary from state to state. Thus, prior to signing one, firms should seek good legal advice of course as well as consulting with your insurance provider.
In summary, as an employer, you should understand that all Workers’ Compensation claims with subrogation are different. Generally speaking, there are many pluses to subrogation. For example, subrogation can ensure that your firm does not get penalized for the actions or lack thereof by a third party. In addition, by recovering expenses from the third party rather than from your own insurer, you can reduce your experience modification (XMod), with an added benefit being that your WC premiums will be reduced.
At the same time, subrogation also has some disadvantages. For example, you may harm an excellent business relationship with a third-party firm if you bring subrogation proceedings against it. Therefore, although you must hold the third party accountable, it’s important for you to carefully weigh these factors in order to make an informed business decision.
So, it’s good to remember that every WC claim and situation is different. Always consult with your insurance carrier and your legal counsel to determine what is your best course of action. Talk to us today for additional Workers’ Comp Resources; just call 909.466.7876! Our experts will not disappoint you!