What is 'Subrogation'

Subrogation is a term denoting a legal right reserved by most insurance carriers. Subrogation is the right for an insurer to legally pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid by the insurance carrier to the insured for the loss.

BREAKING DOWN 'Subrogation'

Subrogation literally refers to the act of one person or party standing in the place of another person or party. Subrogation in the insurance sector, especially among auto insurance policies, occurs when the insurance carrier takes on the financial burden of the insured as the result of an injury or accident payment and seeks repayment from the at-fault party.

One example of subrogation is when an insured driver's car is totaled through the fault of another driver. The insurance carrier reimburses the covered driver under the terms of the policy, and then pursues legal action against the driver at fault. If the carrier is successful, it must divide the amount recovered after expenses proportionately with the insured to repay any deductible paid by the insured.

Subrogation is not only relegated to auto insurers and auto policyholders. Another possibility of subrogation occurs within the health care sector. If, for another example, a health insurance policyholder is injured in an accident and the insurer pays $20,000 to cover the medical bills, that same health insurance company is allowed to collect $20,000 from the at-fault party to reconcile the payment.

Subrogation Process for the Insured

Luckily for policyholders, the subrogation process is very passive for the victim of an accident from the fault of another party. The subrogation process is meant to protect insured parties; the insurance companies of the two parties involved work to mediate and legally come to a conclusion over payment. Policyholders are simply covered by their insurance company and can act accordingly. It benefits the insured in that the at-fault party must make a payment during subrogation to the insurer, which helps keep the policyholder's insurance rates low.

However, in the case of an accident, it is still important to stay in communication with the insurance company. Make sure all accidents are reported to the insurer in a timely manner and let the insurer know if there should be any settlement or legal action. If a settlement occurs outside of the normal subrogation process between the two parties in a court of law, it is often legally impossible for the insurer to pursue subrogation against the at-fault party. This is due to the fact most settlements include a waiver of subrogation.

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