A bill which would ban subrogation has been proposed in the Pennsylvania legislature. Senate Bill 1065, introduced by Senators Brightbill, Punt and Waugh, on September 7, 1999, proposes to abolish both the collateral source rule, (the rule by which collateral sources of recovery are not divulged to a jury), and the right of subrogation itself. Known as the "Single Recovery Act", this bill states that in any tort action, "a claimant shall not recover damages or compensation for any collateral source payments paid, reimbursed or expected to be paid or reimbursed by a collateral source to or on behalf of the claimant." It also states that a collateral source shall have no right of subrogation or reimbursement and shall be barred from asserting, enforcing or collecting upon a lien, right or claim of any kind against the claimant's recovery from the tortfeasor with respect to collateral source payments.
The Bill's Purpose
The purpose of this proposed legislation is anything but clear. The intent of subrogation in all fifty states has been to prevent double recovery by the claimant and to reduce the burden of insurance on the public. Subrogation serves to shift the fault and responsibility for payment of a loss to a culpable party, as opposed to an innocent insurance carrier. While the proposed legislation would take care of the problem of a double recovery, because it does not allow the claimant to recover the collateral source payments, it would not accomplish the purpose of reducing the burden of insurance on the public. There has been much debate about the effect of subrogation on premiums and risk modifiers, but underwriting premises and basic insurance philosophy has long held it subrogation positively affects premiums - or at least it should.
In many states, class actions have been filed against insurance carriers who did not turn over deductibles to insureds after recovering those deductibles from a tortfeasor, citing the consumer's interest in recovering their deductibles. That whole mind set seems lost with the proposed legislation, and it remains to be seen exactly what the agenda is of the proponents of this bill. After all, it should be the tortfeasors whose rates are affected, not the innocent parties or insureds who have contributed little, if at all, to a serious loss or injury.
A Future "No Fault" State?
Although the statement that subrogation is purely an equitable doctrine is somewhat misplaced, it is certainly a doctrine that has its roots squarely in equity - or fairness. The bill seems to be the first rumination of creation of an entirely "no fault" state. Logic would dictate that if you can ban subrogation, you can certainly ban plaintiffs' suits. What has happened to the carrier's rights to contract under both the federal and state constitutions? Can an insurer not take an assignment of a cause of action from an insured as part and parcel of its insurance contract? These three legislators seem to think not.
Subrogation has always been a hot topic among insurance representatives who played both sides of the liability fence. For every subrogation suit, there is usually a corresponding liability file open somewhere. However, that does not seem to be reason enough to ban the entire concept and function of subrogation.
I am interested in any information any of you may have regarding the actual effect subrogation has on premiums in all lines of insurance. Studies are being done and Appellate Courts somewhere will want to know whether banning subrogation also means harming the insured in one way or another, even if it means merely increased premiums.
*article courtesy of Gary Wickert of Mohr & Anderston. E-mail him at gwickert@mohr-anderson.com.