Your Personal-Injury Settlement: Three Ways to Keep Your Insurance Company from Grabbing It All

After a personal injury, you may need to rely on your health-insurance policy to cover your expenses for necessary medical care. Your primary health-insurance coverage allows you to receive accident- or injury-related treatment, surgery, or hospitalization from providers that are financially compensated before your attorney arranges a settlement or monetary award for you.

After you receive an award or settlement, you may have to pay back your health-insurance company for the cost of your medical care.

There are three ways to avoid having to pay back the costs to your personal insurance carrier after a personal-injury award, but be aware that each of the following solutions has its limitations.

Have coverage through the Affordable Care Act

When your insurance company demands to be reimbursed from your settlement funds for the money they paid for your health care, they are trying to enforce rules of "subrogation" that are written into your healthcare policy. In general, these subrogation clauses appear in health-insurance policies provided by employers, and they are enforced under the ERISA (Employee Retirement Income Security Act) rules.

If you have private insurance you've secured through the Obamacare exchange, you will not have the same subrogation clause and will normally not be expected to reimburse your health-insurance plan for the money they have paid out to your medical team for your accident or injury.

Some ERISA-governed plans don't meet guidelines for subrogation, so you should have a personal-injury attorney go over the policy before you agree to pay your plan back for your healthcare. It's also not wise to cancel your employer-sponsored healthcare plan to avoid any future liability unless you'll immediately secure an alternative health-insurance plan.

Prove that you have not been "made whole"

The "made-whole" rule is viewed by litigators, insurance companies, and courts as the doctrine agreeing that your primary health-insurance provider can't get paid back from your settlement funds until you're completely mended. You must be able to prove that you will have future medical expenses and costs related to the accident, and you must prove current impairment due to the injury, but this rule can keep your insurance company from placing a lien on your personal-injury settlement.

The "made-whole" doctrine does not always work in an injured person's favor, however. A recent Wisconsin ruling would not allow an injured motorcyclist to have money paid to his insurance carrier by the at-fault driver's insurance carrier.

The money he wanted to keep was reimbursement to his insurance company for a payment made to him for the value of his motorcycle. The injured man argued that since he had exhausted all of the other settlement money on medical bills and had more bills to come, he should receive the motorcycle money twice under the "made whole" rule. The court disagreed, stating that the two policies were separate, and that his future health care needs could not be met by money intended as compensation to his insurance carrier for costs of his vehicle he had already been paid.

Spend your settlement money really fast

The United States Supreme Court made a very important ruling recently in a subrogation claim made by an insurance company against an injured man's settlement. The insurance company kept dragging its feet on deciding how much reimbursement it wanted from his settlement, so the injured man's attorney told the carrier it had two weeks to make a claim, or else he was dispersing all of the funds to the injured man.

Months later, the insurance company sued the man to recover their costs for his healthcare, but he had already spent the money providing for himself and his daughter. The court ruled that the insurance company didn't act within the 14 days they were given to act and that they were not entitled to go after the injured man's general assets. The insurance company can only have access to the specific funds allocated for the injury, and once those funds are gone, it's too late unless the insurance company can go back and trace where all of the funds went.

Of course, you don't want to blow money just to avoid reimbursing your primary health-insurance company, because that's not going to lead to financial security for you or your family in the future, but this ruling will hopefully make insurance companies stop dragging their feet, and it may help injured parties keep more of their hard-won settlement funds.

Rules on subrogation are complicated and require the advice of a personal-injury attorney familiar with the laws in your state. Many states have additional rules to protect you from having to pay back your injury-related costs out of your settlement fund, so consult with a knowledgeable lawyer before agreeing to any repayment plan.