In the end, someone always pays. It just may not be the person you expect. If someone injures you or damages your property, your insurance policy may cover your damages. But it may not end there, especially for your insurance company - and maybe even for you.

Toyota's Continuing Woes

You may have heard about Toyota's recall saga: Millions of its cars were recalled in 2009 and 2010 for various defects, ranging from faulty floor mats to sticking gas pedals. Hundreds of lawsuits were filed across the US by drivers (or their families) injured, killed or suffered property damage because of the alleged defects.

A new chapter in the saga began in February 2011 when the car maker announced a recall of around 20,000 vehicles because of problem with the carpeting near the gas pedals. Another wave of lawsuits is almost a certainty.

Who Pays Insurers for the Claims?

Naturally, injured drivers and owners with damaged cars looked to their insurance companies whether or not they filed lawsuits or joined any of the class action lawsuits against Toyota, and the companies have paid many claims already.

Insurers Want Their Money, Too

Pay outs by the insurance companies didn't end the matter, though. Insurance companies such as Allstate and Fireman's Fund, along with at least six others, sued Toyota. They want Toyota to pay them what they paid out to their customers on claims involving the defective cars.

In all, they want a little over $3 million from Toyota in compensatory damages. They just might get it, too.

Subrogation

Subrogation is a legal tool where someone steps into the shoes of another person to enforce that person's legal rights. It's very common in the insurance field, especially when personal injuries happen.

For example, say you're injured in a car accident with Driver A. You file a claim for $10,000 for your medical bills and car repairs with your insurance company. Your insurance company pays the claim. Then, your insurance company goes after Driver A to recover the $10,000 it paid to you.

This is exactly what the insurance companies are doing with Toyota. The trick is that they have to prove Toyota was at fault or to blame for the injuries and damages suffered by the insurance companies' customers. Driver-owner victories against Toyota already - including a $10 million settlement in 2011 in a wrongful death case - bode well for the companies.

What It Means for You

Subrogation by your insurance company can impact you and the rest of us. It can be good, and maybe not-so-good. On the upside, subrogation helps keep insurance rates down. After all, if the insurance companies can recoup what they pay out in claims, it's like not paying claims at all.

Instead of recouping the money from you and me in the form of higher premiums, they recoup it from the parties at fault. Customers save money, the person or company who's truly to blame for injuries and damages is held responsible and accountable: Win-win.

Impact on Legal Rights

On the downside, subrogation may have a negative impact on your legal rights and maybe your wallet - so to speak. You see, as a general rule, you can't get paid by your insurance company and by the person hurt you, too. The law lets you recover for your damages, but it doesn't let you profit from your injury or damage.

So, in the example above, say after you're paid $10,000 by your insurance company you file a personal injury lawsuit against Driver A. A jury awards you $20,000. As a general rule, you'd have to repay your insurance company $10,000 it paid to you. If you don't repay it, it could place a lien against your award and have the money taken directly from it.

You may be able to file a claim with your insurance company if you've been injured, but understand how your claim may impact your legal rights and ability to get reimbursed. It might benefit you to talk to a lawyer about how this affects your claim.

Questions for Your Attorney

  • Should I file a claim with my insurance company or file a lawsuit against the person who injured me?
  • Can I stop my insurance company from filing a subrogation lawsuit or claim?
  • Do I have to let my insurance company know if I plan on filing a lawsuit against the person who injured me?

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