If your insurer pays a covered claim after someone else caused your loss, it may try to recover that payment from the responsible party or their insurer. That process is called subrogation. It can affect whether you get a deductible back, what you can do before settling with the other party, and—when a health plan is involved—how much of a settlement you may have to repay.
What subrogation means
Suppose another driver damages your car. You use your collision coverage to pay for repairs, subject to your deductible. Your insurer may then pursue the at-fault driver or that driver’s insurer to recover what it paid. The California Department of Insurance describes subrogation as “the right of the insurance company to recover from a third party the amount of damages it paid to you” in its consumer auto guide.
In general, subrogation is an insurer’s recovery effort after it pays a covered loss. The NAIC’s Journal of Insurance Regulation discussion describes recovery as limited to the full or proportionate amount of benefits paid. It is not a way for the insurer to profit from your claim. Whether an insurer has recovery rights, and how it can exercise them, depends on the policy or plan and the law that applies.
How the process works
- A loss occurs. You report it to your insurer or health plan and submit a claim for covered costs.
- The insurer pays covered amounts. Payment is governed by the contract, including applicable limits, deductibles, and other cost sharing.
- The insurer looks for a responsible third party. If another person or organization may be legally responsible, the insurer may seek recovery from that party or its insurer.
- Responsibility and recovery are resolved. The parties may agree on liability and the amount to repay, or the recovery effort may be partial, unsuccessful, or unavailable.
- Your interests may be included. In some situations, a deductible you paid can be part of the recovery. Any amount returned depends on the recovery and applicable rules.
This is a general outline, not a guarantee that an insurer will pursue every claim or recover money in every case.
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Subrogation can help an insurer offset what it paid on a claim. For a policyholder, a successful recovery may also help return a deductible. But recovery does not guarantee a deductible refund, and the available sources do not establish that subrogation automatically lowers premiums.
Your choices can affect the insurer’s ability to recover. In particular, agreeing directly with the other party or signing a release without first talking to your insurer may interfere with its recovery rights. If a settlement is being discussed, ask your insurer what the proposal means for both its claim and any money you may be owed.
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Can you get your deductible back?
Possibly. The answer depends on where the claim is handled, how much the insurer recovers, whether you share fault, and the applicable policy and rules.
California auto claims
The California Department of Insurance says an insurer pursuing subrogation must include the insured’s deductible unless it has already been recovered. Its guidance illustrates proportional recovery: a full recovery can return the full deductible, while recovery of 65% can return 65% of it. These are California-specific rules and examples, not a nationwide guarantee. See the department’s auto consumer guide.
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Washington auto claims
Washington’s insurance regulator says that when you paid a deductible, your company must include it in its subrogation demand. If you are partly at fault, only a percentage may be recovered. Washington’s regulation also limits deductions from deductible recovery unless an outside attorney is retained to collect it. Check the Washington Office of the Insurance Commissioner guidance and the applicable Washington regulation.
Other states
Rules differ by state. Ask your insurer how it will handle your deductible and check your state insurance regulator’s guidance. Do not assume that California’s or Washington’s approach applies to your claim.
Before accepting payment or signing a release
In California, policyholders must cooperate with the insurer’s subrogation effort and must not jeopardize its recovery rights. The California regulator gives releasing the at-fault party in exchange for a deductible payment as an example of conduct that can interfere with recovery. Washington advises policyholders to notify their insurer if they plan to settle with the at-fault person or that person’s insurer. The practical step in either situation is the same: contact your insurer before accepting direct payment or signing a release.
- Tell your insurer about the proposed settlement or payment.
- Ask whether the insurer has a recovery claim and whether the agreement could affect it.
- Ask how your deductible or other out-of-pocket costs will be handled.
- Get the insurer’s guidance before signing documents that release the other party.
How health-plan reimbursement differs
Subrogation also arises when a health plan pays medical bills related to an injury and the injured person later receives money from a responsible party. In that situation, the plan may seek reimbursement from the person’s recovery. This is different from an auto insurer pursuing another driver while the policyholder seeks a deductible refund: the health plan may be asserting a claim against money the injured person receives.
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The rules depend on the plan and its governing law. Federal Employees Health Benefits (FEHB) regulations require FEHB plan contracts to provide for carrier subrogation and reimbursement recoveries, and require the plan brochure to explain the carrier’s policy; see 5 C.F.R. § 890.106. In Coventry Health Care of Missouri, Inc. v. Nevils, the Supreme Court held that FEHBA contract provisions in that case preempted conflicting state restrictions. That holding concerns its particular federal statutory setting and does not establish a rule for every health plan.
Other plan arrangements can produce a different analysis. In FMC Corp. v. Holliday, the Supreme Court addressed ERISA preemption involving a self-funded employee health plan and state insurance regulation. Whether a reimbursement demand is enforceable can depend on the plan document, how the plan is funded, applicable federal and state law, and the facts of the claim. If the amount is substantial or the demand is disputed, consider getting advice from a qualified attorney familiar with the plan and the relevant jurisdiction.
Quick Recap
What to check in your policy or plan
- Recovery rights: What does the policy, plan document, or brochure say about subrogation or reimbursement?
- Your costs: How are a deductible and any other out-of-pocket expenses treated if money is recovered?
- Settlement restrictions: Must you notify or cooperate with the insurer before settling or releasing a responsible party?
- Applicable rules: Which state or federal law governs, and does a state insurance regulator provide guidance for your type of coverage?
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