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Standing in the Shoes of the Insured: Ohio Statutory Subrogation Now Made Whole

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By Acacia Perko

October 26, 2015

Just last month, on September 28, 2015, an amendment to Ohio Revised Code 2323.44 reduced the rights of subrogees asserting subrogation claims against third parties. This new statute changes well-established subrogation law in Ohio by limiting the right to contract around the equitable “made whole” doctrine. The statute mandates proportionate sharing, which is currently required in 35 other states. The statute does not supersede federal laws or statutory workers' compensation liens. The statute does not state whether it applies to claims arising after its effective date or applies to claims not settled as of its effective date. We expect the statute to impact insurers and employers across the board, decrease subrogation recoveries, and increase litigation over the value of claims.

The new statute modifies the established history of subrogation in Ohio. In basic terms, “subrogation” permits an insurer to step into the shoes of an injured insured to pursue a third party that caused an insurance loss to the insured. In reviewing subrogation cases, Ohio courts enforce the equitable “made whole” doctrine, which provides that the insurer generally has no right of subrogation until it has actually reimbursed, compensated, or paid on behalf of the insured. Historically, this doctrine could be disclaimed by policy or plan language. However, the new statute limits the right to contract around the “make whole” doctrine by requiring proportionate sharing.

The new law mandates that the insurer and the insured must share “proportionately.” Many insurers have been doing for years without specified legislation. Simply put, the new law provides that the rights of a subrogee against a third party are “diminished in the same proportion in which the injured party’s interest is diminished.” The injured party’s interest may be diminished for any reason, including, but not limited to, “comparative negligence, or by reason of the collectability of the full value of the claim for injury, death, or loss to person resulting from limited liability insurance or any other cause.” Ultimately, this language statutorily reduces a subrogee’s recovery in tort actions. If either party disputes the distribution, the remedy is declaratory judgment.

Notably, the statute does not supersede federal laws or statutory workers' compensation liens. The new law does not specifically reference application to R.C. 4123.931, the workers’ compensation subrogation statute. Workers’ compensation subrogation occurs when the employee is injured at work and workers’ compensation pays for lost wages and unlimited medical expenses. Ohio law provides that when the injured employee files suit against the person responsible for the injury and recovers, the employer is entitled to this right of reimbursement. R.C. 4123.931 already contains a statutory formula contemplating a proportional distribution of settlement funds even if the injured worker is not made whole. Thus, these new changes, at least on the surface, may have no impact on workers’ compensation settlements.

The statute does not state whether it applies to claims arising after September 28, 2015, its effective date, or applies to claims not settled as of that date. Ohio courts look to legislative intent on how to apply the effective date to pending actions. Courts examine whether the statue is substantive or procedural. This statute appears to only alter the remedy available, and is not substantive. If the courts agree, then the statute will apply to causes of actions accruing before, but filed after, the effective date of the law. To illustrate, the date of loss is May 2015 but the lawsuit is not filed until November 2015, then the new statute applies. Conversely, if a lawsuit is filed in August 2015 and is still pending on the effective date of the statute, then the statute would not affect the resolution of the claim.

In sum, insurers and employers should not shy from pursuing subrogation claims on behalf of their insureds but should expect:

  • Changes in medical pay, hospital, doctor, and Medicaid liens;
  • Decreased subrogation recoveries and increased litigation over the value of claims, particularly where non-economic damages are involved; and
  • Potentially higher insurance premium rates if subrogees are unable to collect from third parties amounts they have already paid.

If you have questions about this amendment to Ohio Revised Code 2323.44, or any issue of subrogation in general or issues involving employee injuries, please call one of our General Liability/Excess and Surplus Lines Practice Group members.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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