Whether to File a Lien or Intervene: Practical Considerations to Maximize Subrogation Recovery

Consider this scenario: You have a strong case for subrogation arising from an employment-related accident. The injured employee’s attorney files suit, but refuses to move the case forward. Out of necessity you intervene and successfully negotiate the recovery of $35,000 of your $50,000 lien. Unfortunately, you spent $45,000 to recover $35,000.

Do not let this happen to you!

Even the best subrogation cases can hurt the bottom line. The purpose of subrogation is to maximize your recovery through pre-litigation negotiations or a lawsuit. Failure to closely monitor the prosecutorial strategy may result in a net loss; the amount of expended fees and costs will be weighed against the amount recovered.

This article provides an overview of recovery practices to maximize the net recovery.

There are three ways the insurance company can pursue the responsible third party: 1) file a complaint against the third party; 2) join as a party plaintiff or intervene in an action brought by the employee against the third party; or 3) allow the employee to prosecute such action and apply for a lien upon the net amount of the employee’s judgment. (Gilford v. State Compensation Ins. Fund (1974) 41 Cal.App.3d 828, 831 [116 Cal.Rptr. 615]).

The employer’s rights in respect to settlement of the employee’s claims against the third party are set forth in Labor Code §§ 3859 and 3860. (Marrujo v. Hunt (1977) 71 Cal.App.3d 972, 976.)

To determine the best, most practical avenue to maximize recovery the considerations are manifold. Experienced counsel take a holistic look at the entire picture and know how to weigh mutually competing factors against each other.

Four key tips to help you maximize subrogation recovery are as follows:

1. Managing the adjuster/attorney relationship.In an ideal world, the responsible party would pay 100 percent of what the insurance company pays the insured – especially when liability is clear. Even in situations where all sides agree the insured was free of fault, there is a cost associated with recovery. Open lines of communication and in-line expectations are crucial elements for successful subrogation claims.
2. Filing a notice of lien.Once you’ve decided to pursue cost recovery, and you have a good attorney/adjuster relationship, the next step is to prepare to take action. Increasingly, filing a notice of lien is an en vogue solution. When you file a notice of lien, you are putting all parties and the court on notice of your lien against any recovery to plaintiff. Once a notice of lien is filed, it is best to let the plaintiff prosecute and get out of their way. Insurers can still participate in the process behind the scenes with settlement discussions, or provide information to plaintiff’s counsel. Keep in mind that when filing a notice of lien, your lien is subject to the common fund doctrine. The common fund doctrine is an equitable principle that stands to reduce the lien by the insured’s reasonable attorneys’ fees and a pro-rata share of litigation costs.
3. When should you NOT file a notice of lien.The purpose of subrogation is to actually recover a portion of the lien from the third party. If plaintiff’s counsel is asleep at the wheel, or consumed by a malicious and destructive cycle of spite including discovery battles and law and motion, you may want to consider the alternative: intervene into the action.
4. Deciding to intervene. Plaintiff’s counsel may be responsive and competent, but the defense has decided to fight liability, or the particulars of the insured’s suffering has defendant fighting scared. Intervening allows the insurance company to regain control of the case. There are several factors to consider when determining whether and how to pursue subrogation – these are only a few. The most important factors are a good working relationship with counsel and clear communication.