Texas Health Insurance Subrogation Cap Statute (Insurance Code Chapter 140 — The 'Payor Recovery' Formula)
Summary of the Texas Rule (Tex. Ins. Code §§ 140.001–140.007)
Abolishes the harsh common-law 'first-dollar' contractual subrogation rule for non-ERISA-preempted Texas health insurance plans, capping health-plan reimbursement at 1/3 of the gross settlement (after attorney's fees) or 50% (without an attorney).
Statutory Text Summary & Legal Mechanics
Enacted in 2013 (HB 1869) to overturn Fortis Benefits v. Cantu, 234 S.W.3d 642 (Tex. 2007), Tex. Ins. Code § 140.005 limits a health benefit plan issuer's subrogation recovery when the injured insured is represented by an attorney to the LESSER of: (1) one-half of the gross recovery LESS the payor's proportionate share (up to 1/3) of the claimant's attorney's fees and pro-rata litigation expenses (effectively capping the health insurer's net take at 1/3 of the gross settlement!); or (2) the total dollar amount of benefits actually paid by the plan less the 1/3 common-fund attorney-fee reduction.
Practical Impact on Texas Personal Injury Claims & Jury Trials
ERISA Preemption Check: Chapter 140 applies to all individual ACA marketplace policies, state/local government employee plans (ERS/TRS), church plans, and fully-insured group health plans in Texas. However, truly self-funded corporate employer plans governed by federal ERISA (29 U.S.C. § 1144(b)(2)(B)) preempt Chapter 140—requiring audit of the employer's Form 5500 Schedule A and Summary Plan Description (SPD).
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