Subrogation in Insurance: Meaning, Purpose, Process and More

Subrogation is the process by which your insurance company seeks financial reimbursement for claims it paid out but wasn’t financially responsible for. For example, if you were in a car accident but the investigation shows it was the other party’s fault, your insurance company can seek full reimbursement for the money it paid out on your claim from the at-fault party’s insurance company. This might mean that you get your deductible back as part of the reimbursement process. Learn more about subrogation and how you can benefit.

What is Subrogation? Meaning, Example, Purpose

Subrogation can also be called subro for short. It is the process by which one insurance company seeks financial reimbursement from another insurance company that is found to be liable for the expenses.

Its purpose is to best serve policyholders while ensuring the liable party ultimately pays the claim. This means that you don’t have to wait around for the insurance companies to investigate a claim while suffering through not having a vehicle after an auto accident. Instead, you can pay the deductible on your auto policy, take your car to the shop and get it fixed.

Then your insurance company will continue its investigation to find who was at fault for the accident and who is therefore liable. From there, it will pursue reimbursement.

Subrogation can happen in a variety of forms. While car accidents are the most common, they are not the only situation where subrogation takes place. If you were injured as a pedestrian and put the claim through your health insurance, the health insurance company might go through subrogation to get the at-fault party’s insurance to cover your claim.

Different Types of Subrogation

Three types of subrogation can come into play based on the situation. Learn the subrogation meaning in these various instances. 

Contractual subrogation

This can also be known as conventional subrogation. It is when there is a written contract that exists. It can modify legal subrogation rights. Car insurance policy contracts can give the insurance company the right to recoup costs on behalf of a policyholder for a settled claim.

Equitable subrogation

Legal doctrine establishes the right to subrogation in many instances. The most common is subrogation in insurance where legal doctrine allows an insurance company to seek damages from an at-fault party when its policyholder files a not-at-fault claim.

Statutory subrogation

In these situations, legislation allows an individual to seek compensation from a party that they have no contractual relationship with. A good example of this is when an employee seeks coverage for medical expenses they incurred from an injury they sustained while working.

The Subrogation Process: How It Works in Insurance

For the most part, the policyholder doesn’t have to worry much about the subrogation process. That’s because the insurance company stands in for the person or party that is the policyholder. Lots happens behind the scenes that the policyholder doesn’t have to worry about. 

The insurance company will have the same rights and legal standing as the policyholder since they are acting on the policyholder’s behalf.

Once the policyholder’s insurance company has paid the claim, it begins the process of seeking reimbursement from the other party or the other party’s insurance company. The policyholder benefits because they get prompt coverage for their claim while their insurance company does the behind-the-scenes work.

Within policy language, there is a clause that allows the insurance company to seek fund recovery from third parties when they are at fault for the accident.

The insured won’t have a large role during the subrogation process, other than to answer their insurance company’s questions and comply with the investigation into the claim to prove the other party was at fault.

What Are the Pros and Cons of Subrogation?

Learn the pros and cons of subrogation to decide whether to wait to get your property fixed and bills paid once the incident investigation is complete.

Benefits of Subrogation

• Saves policyholder time and stress
• Ensures timely payouts on a claim for a policyholder
• Once the insurance company is reimbursed for the claim, it won’t count toward the policyholder when determining future insurance rates

Limitations of Subrogation

• Can make the process of suing the at-fault party more complex
• You’ll have to pay your policy’s deductible upfront
• There is a risk that subrogation will fail

Tips for Successful Subrogation

While policyholders don’t have a very active role in the subrogation process, they do have an interest in ensuring its success. There are several things you can do to help your insurance company during the subrogation process.

1. Gather insurance information from the other party at the scene when possible.
2. Assist in gathering evidence, such as police or incident reports.
3. Document everything thoroughly, including conversations and interactions.
4. Communicate openly with your insurance company and subrogation specialist.
5. Avoid communicating with the other party’s insurance company without a representative from your company present.
6. Be timely in your responses to your insurance company to help the process move smoothly.

What is a Waiver of Subrogation?

A waiver of subrogation is when the policyholder waives their insurance company’s right to settle a claim or sue another party to recoup their losses. Insurance companies charge extra for policies with a waiver of subrogation because it reduces their ability to seek financial reimbursement for claims it is not responsible for.

However, the parties involved in the contract can then avoid litigation, which can be time-consuming and cause delays. Waivers of subrogation are most common in construction contracts to avoid project slowdowns litigation can cause. A waiver of subrogation might be required to enter into certain contracts where the other party wants assurances that they won’t be held liable for anything that happens.

Faster, Simpler Claims When Seeking Subrogation

Subrogation favors the policyholder by making it faster and easier to seek coverage for a claim. They can work with their own insurance company and enjoy peace of mind that the insurance company will then pursue financial restitution from the at-fault party. Overall, subrogation is good for policyholders and can help protect their rights after an accident.

Frequently Asked Questions