Subrogation

Subrogation is the legal right of a third-party payor — such as a health insurer, ERISA plan, or government program — to recover from a tort settlement the amounts it paid for medical treatment of injuries caused by the defendant. In mass tort litigation, subrogation claims from private insurers and government payors can consume a significant fraction of individual settlement proceeds, particularly for claimants with serious injuries who have received expensive treatment. ERISA-governed plans have particularly strong subrogation rights under federal law and may assert dollar-for-dollar reimbursement without equitable reduction, a feature that distinguishes them from state-law subrogation claims. Litigation funders underwriting mass tort claims must model expected subrogation exposure as a first-priority claim against settlement proceeds that ranks ahead of funding repayment in most settlement waterfall structures.

ERISA-governed plan subrogation claims are underwritten as a first-priority deduction from settlement proceeds because those plans can assert dollar-for-dollar reimbursement without the equitable reduction available under most state-law subrogation regimes — a materially harder deduction to negotiate down than a private insurer's claim. Funders assess the proportion of a claimant cohort covered by ERISA plans specifically, since that mix changes the expected net recovery available to satisfy funding repayment ahead of subrogation claims.