Although a settlement check may come from the at-fault party's insurer, a skillful negotiation with a client's own insurer can result in a higher net settlement. As you may be aware, an insurer (i.e. PIP, Medpay, Health Insurance) is entitled to repayment for funds paid by the insurer to a client's health care providers. The client's repayment obligation is called subrogation. This means that the insurance company who paid the client's medical expenses holds a lien on the settlement, and is entitled to repayment from the settlement with the at-fault party.
When a client retains an attorney to represent her/him in connection with a bodily injury claim, the client may be entitled to a reduction in the repayment obligation to the insurer who paid the client's medical expenses. Washington law requires most insurance companies to share in the client's legal fees and costs incurred to obtain the settlement from the at-fault party's insurance company. In most cases, the client is entitled to a reduction in an amount equal to the contingency fee charged by her attorney. For example, if a client's own insurance company paid $10,000 pursuant to a Personal Injury Protection (PIP) policy, and the client's attorney charges a 33% contingency fee, the client would be entitled to a reduction of $3,300. In addition, the insurance company must share in the costs incurred by the attorney to obtain the settlement. This reduction is known as a "Mahler" reduction because the case that established this right was the seminal Washington Supreme Court case, Mahler v. Szucs, 135 Wn.2d 398, 957 P.2d 632 (1998).
In some cases, an insurer may not be entitled to any repayment if the client is not "made whole" by virtue of the settlement with the at-fault party. Because subrogation is an "equitable" principle, an insurer may not be entitled to repayment for sums paid for medical expenses, wage loss, etc. where the settlement with the at-fault party is insufficient to compensate the client for her/his damages incurred as a result of the accident. For example, if the at-fault party maintains only $100,000 in policy limits under an auto policy and the client's damages total $200,000, the client's insurance company may not be entitled to receive any repayment for sums paid by the insurance company for the client's medical expenses. However, in order for the waiver to be effective, the attorney must specifically request and receive a waiver from the insurance company. The ability of an insured to avoid repayment if the client is not "made whole" is known as the "Thiringer" doctrine because the case that established the repayment waiver is Thiringer v. Am. Motors Ins. Co., 91 Wn.2d 215, 588 P.2d 191 (1978).
To ensure that you retain as much of your settlement as possible, it is important to retain an attorney experienced with subrogation negotiation and your rights under Washington law. For more information on subrogation or to speak to an attorney regarding your case, please contact us.