Subrogation Insurance

Picture this; a motorist slams into your car one morning, and he’s obviously at fault. On trying to exchange insurance details, you discover the other driver has no cover. After finishing up with the police, you file a claim with your insurance provider who requires a deductible but caters to all the other costs to allow you to back on the road. But wait, what happens to the uninsured at-fault driver?

One of the most overlooked aspects of insurance is how the insurer recoups their money. In the case above, you might not sue the other driver not that you have your car back. However, your insurance provider has the right to go after them and recoup the money paid to you. This is the concept of subrogation.

What Is Subrogation?

Subrogation meaning: This is the substitution of one party or group for another party in a legal setting. An insured party surrenders the right to sue for damages from a third party to their insurer after receiving a payout for an insured loss. The insurance policy provider will assume your legal right to pursue a party or organization for an insurance claim.

In the scenario provided above, you are happy that your car is back on the road but the insurer has made a loss and has every right to recoup it through legal means. The insurance company will take your role in law to claim damages from the uninsured at-fault driver.

If you have ever wondered how insurance companies managed to survive even after paying millions of dollars in claims, the answer lies in subrogation. They use this legal technique to reclaim the money paid out for insurance claims.

In subrogation, there are three parties involved; the insured (the policyholder), the party responsible for the damages and the insurer (the insurance company). In your policy document, there will be a section on subrogation, including a subrogation definition and explanation of what it entails.

This concept works for multiple insurance policies, including auto insurance, workers’ compensation insurance, among others. Without this legal concept, an insured person would collect damages from the insurance company and continue to sue for more from the third party. It would essentially kill the insurance industry.

What Is A Subrogation Claim?

A subrogation claim is submitted by an insurance provider who has paid damages to a policyholder after a loss. The claim is sent to a third party or their insurer if they are responsible or liable for the damages paid.

The process of subrogation starts after the insurer has paid losses of a claim made by the insured party. If the party responsible for damages has an insurance cover from another company, this carrier will receive the subrogation claim on behalf of their clients.

The correspondence is mostly between insurance companies hence you don’t hear about these claims. However, your insurance company needs to notify you of the subrogation process for two reasons:

  1. In a case where you have paid a deductible, your insurance company is required by law to refund the amount as part of the subrogation claim. When your insurer subrogates this money, your rates and premiums will remain low.
  2. The insured client will have to cooperate with the insurer in the subrogation process. For instance, you should not sign any agreements with the third party who caused damages to release them legal or financial responsibility.

What Is Subrogation Insurance?

A quick search using the phrase “what is subrogation in insurance?” on any search engine gives you millions of results. This highlights the importance of this basic principle in insurance.

Subrogation is not a type of insurance cover but rather a principle where one party (the insurer) has the right to “step into the shoes” of another party (the insured) to bring a claim for damages. This happens after an insurance provider has paid a claim for damages to a policyholder.

In the case of property damage or auto insurance, the insurer pays your claim but assumes the legal right to claim any future gains from the damaged car or property.

Why Is Subrogation Important?

While you might not be aware of the subrogation claim by your insurance provider, this process benefits both parties. Take a look:

  1. Lower premiums: The amount recovered by the insurer boosts their bottom line and this can translate into lower premiums.
  2. Recovery of deductible: Your insurer will refund your deductible and any other out-of-pocket expenses. In these tough economic times, every coin counts and this is all possible due to subrogation.
  3. Holding everyone accountable: The subrogation process ensures the at-fault party accepts responsibility and pay for the losses. It can serve as a deterrent for negligent behavior in the future.

Why Is Subrogation Used?

The principle of subrogation in insurance helps insurance companies recover money paid after a successful claim by a policyholder. They submit a subrogation claim to the party that caused the damages or their insurance carrier.

This principle is the backbone of the insurance industry as it helps insurers recoup losses by going after third parties responsible for claims.

This concept helps the industry run smoothly as insurers pay claims fast. The insurers know they will recoup the money through subrogation.

Who Needs Subrogation Insurance

Subrogation is an integral part of most insurance covers and it is important for anyone buying coverage. While you might not be directly involved in the subrogation process, it will help you through a refund of the deductible and any out-of-pocket expenses.

This subrogation principle also protects your insurer and boosts their bottom line. Ultimately, you will enjoy lower premiums and overall better services. Anyone buying insurance cover thus needs to confirm about the subrogation insurance clause.

What Are Subrogation Rights

When signing an insurance policy, the subrogation clause assigns subrogation rights to the insurance company. Most policy buyers don’t take the time to understand what this means. In essence, you give up your right to pursue a third party who causes you a loss as long as the insurer pays your claim.

Subrogation rights fall on the insurer. They avert a situation where the insured might profit by receiving a payout from both the insurer and the third-party responsible for damages.

Waiver of Subrogation

In some cases, a client may request a waiver of subrogation which the insurer should grant. A waiver of subrogation is a special policy endorsement and will come with an extra fee. It is common to have waivers of subrogation in construction contracts and leases.

Where a waiver of subrogation exists, the insurer loses the rights of subrogation. They can’t step into your shoes and pursue a claim on your behalf after settling your claim. It exposes the insurer to greater risk and hence comes at a higher cost.

The Waiver of Subrogation may include the name of an entity that the insurance carrier waives its’ right to subrogate against or it can be a blanket waiver of subrogation. In the case of a blanket waiver of subrogation, the insurance carrier will have to seek permission from the policyholder to subrogate against a third party.

How Subrogation Arises

If you plan to buy insurance or you have an existing cover, it’s imperative to understand how subrogation works. Most policies will include the subrogation clause only that most people don’t know about it.

Subrogation arises when your insurer pays a claim for damages caused by a third party. This means you don’t have to pursue damages. The subrogation principle means the insurer takes your place in an attempt to recoup money paid on a claim.

The insurer will pursue the third-party responsible for damages to recover the money paid out in your claim and any deductibles you paid.

Subrogation Documents

The essential documents in the subrogation process include:

  1. The notice of subrogation
    Your insurer sends this document after the accident. The letter requests details about the accident and your injuries. They also want to know about any third parties involved. The letter seeks to identify the insurance company/adjuster for the at-fault party.
  2. Request for reimbursement/subrogation letter
    This goes the at-fault third party or their insurer requesting reimbursement of the amount paid in a claim by an insurer. It includes the date of the claim, a summary of the damages, the amount paid, and a request to open communication.

Final Thoughts

Insurance is one of the most convoluted topics and as a policyholder, it’s important to get an in-depth understanding of any cover you want to buy. This guide covers subrogation in insurance extensively from the meaning of subrogation, how it works, benefits of subrogation, rights of subrogation, waiver of subrogation, and other pertinent details. With this information, you are in a better position to engage your insurer when making a claim and even ask for a refund if they go ahead with subrogation.