Also known as: subrogation claims · subrogated claim · subrogated claims · subrogation
Written by attorneys — see sources below.
An equitable right arising when one party satisfies the obligation of another. The paying party steps into the position of the original creditor and may enforce the claim against the primary obligor to the extent of the payment made.
Carmen personally paid the $180,000 trade debt that Zenith Surety owed to its vendor. After satisfying the creditor in full, Carmen asserted a claim against the partnership assets for the amount she had advanced. The court recognized her right to recover directly from the partnership as the party that had stepped into the vendor's position.
FMC's self-funded health plan paid medical expenses for an injured employee after a car accident. The plan then pursued the third-party tortfeasor to recoup those payments. The court upheld the plan's ability to enforce the employee's original claim against the tortfeasor once the plan had satisfied the medical providers.
FMC Corporation operates the FMC Salaried Health Care Plan, an employee welfare benefit plan within the meaning of ERISA that provides health benefits to FMC employees and their dependents. The Plan is self-funded; it does not purchase an insurance policy from any insurance company to satisfy its obligations to its participants. Among its provisions is a subrogation clause under which a Plan member agrees to reimburse the Plan for benefits paid if the member recovers on a claim in a liability action against a third party. In 1987, Cynthia Ann Holliday, the daughter of FMC employee and Plan member Gerald Holliday, was seriously injured in an automobile accident. The Plan paid a portion of her medical expenses. Gerald Holliday brought a negligence action on behalf of his daughter in Pennsylvania state court against the driver of the automobile in which she was injured. The parties settled the claim. While the state court action was pending, FMC notified the Hollidays that it would seek reimbursement for the amounts it had paid for respondent's medical expenses. The Hollidays replied that they would not reimburse the Plan, asserting that section 1720 of Pennsylvania's Motor Vehicle Financial Responsibility Law precludes subrogation by FMC because section 1719 refers to benefit payments by any program, group contract or other arrangement. Proceeding in diversity, FMC then sought a declaratory judgment in federal district court. The district court granted respondent's motion for summary judgment. The United States Court of Appeals for the Third Circuit affirmed. The Supreme Court granted certiorari to resolve a conflict among the circuits.
View caseA promisee acquires the claim once the beneficiary's obligation has been satisfied from the promisee's own assets. The claim allows the promisee to step into the beneficiary's position and recover from the promisor.
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No. An unsatisfied judgment against one party does not prevent suit against the other. Only actual payment in whole or part reduces the remaining obligation.
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Reimbursement allows direct recovery from the primary obligor. Subrogation permits enforcement of the original creditor's claim and any security. Both mechanisms prevent the primary obligor from retaining an unjust enrichment after payment by the secondary party.
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It depends on the underlying transaction. When the transferee assumes the debt, subrogation may reach both the land and the transferee personally. When no assumption occurs, the right is typically limited to the land itself.
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