Subrogation: The Right to Recovery

Subrogation is a common practice when it comes to insurance, and yet many policyholders find it confusing. In this article, we work through what you need to know about subrogation—from the subrogation meaning, to real-world examples, to the relevant terms and conditions outlined within your policies.

Subrogation Meaning

Before we dive into semantics, let’s start with the formal definition of “subrogation.” Here is the Black’s Law Dictionary‘s subrogation meaning:

The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.

Read on to learn about practical applications of subrogation and how it can impact you in case of a claim.

Subrogation in Practice

Scott Mull, Director of Property Claims at Central Insurance, explains that subrogation is about the relationship between your insurance carrier and the carrier of the at-fault party in your claim.

Here, we outline a few examples of how subrogation can work in practice:

Subrogation after a Car Accident

Let’s say you’re driving down the highway when another car switches into your lane unexpectedly, causing your car to shoot off the road and crash into the barrier. As a result there’s damage to your car, and medical bills for your injuries.

Your insurance carrier is not going to make you sit around and wait for the at-fault driver’s insurance to come through before helping you get back on your feet. Instead, your personal auto insurance will kick in to help repair your car, while your personal medical insurance helps cover the cost of any injuries.

Once you’re taken care of, your insurance carrier will follow up with the at-fault driver’s insurance company and ask them to reimburse your carrier for the cost of your bills. This is subrogation.

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Subrogation after a Fire

Another example of subrogation is in the case of a fire on your property.

Let’s say you have the unfortunate experience of a fire loss resulting from the electrical failure of a newly purchased and installed dishwasher.  Your insurance company will pay for your loss per the terms and conditions of your insurance policy, but since the fire is a result of the dishwasher manufacturer’s negligence, that makes the manufacturer liable for your damages.  

In this instance, like with the car accident example, your insurance company will pay you for the loss, but then subrogate those payments against the dishwasher manufacturer. 

Keep in Mind: Normally, you would have a claim against the dishwasher manufacturer if your dishwasher started the fire, but once your insurance company pays you for your damage, your claim against the manufacturer is transferred from you to your insurance company.  This is called an assignment.  Your insurance company then has the right to recover those payments they’ve made to you from the dishwasher manufacturer for their liability in causing the fire and resulting damage.

Digging Deeper into Subrogation

Continuing on with the example of a fire due to a new dishwasher’s electrical failure, Mull explains that in this instance, your insurance company will pay for covered damages minus your homeowner’s deductible. 

“You will still have the right to recover your deductible as well as any other damages that were not paid by the insurance company from the dishwasher manufacturer,” he says. “However, your insurance company will not likely be able to assist you in recovering any additional out-of-pocket losses not paid for under the insurance policy because they have no legal interest or recovery rights in those damages they did not pay.

5 Tips for Handling a Subrogation Claim

Tip #1: Get Familiar With Your Policy’s Terms and Conditions

Almost every insurance policy contains an insurance condition for subrogation. That condition will typically indicate if you have a right to waive subrogation prior to a loss, and will indicate the insurance company’s right to an assignment against liable parties for losses the company pays for. 

Tip #2: You Are Responsible for the Care & Condition of your Items

The subrogation condition in your policy will outline that it is your responsibility to cooperate with the insurance company in their subrogation efforts for losses they paid. This means that, if your refrigerator was the reason a your home fire for example, it’s your responsibility not to throw that product away and protect it until your insurance company can take possession of it.

Tip #3: Keep an Eye Out for Documentation from your Carrier

Your insurance company may have you sign a subrogation receipt once they have paid the claim which confirms the amount of the loss, the company’s assignment for what they paid and your agreement to assist the company in recovering their payments for the loss. 

Tip #4: Don’t Release The At-Fault Party From Damages

When you are attempting to collect out-of-pocket expenses against someone responsible for your damage, make sure you do not release that party from any other damages they are responsible for.  Doing so may prevent your insurance company from being able to pay your claim if their rights to recovery have been eliminated, violating your policy’s subrogation condition.

Tip #5: Get Coverage from a Carrier You Trust

People invest in insurance with the hope that they’ll never actually have to use it. Unfortunately more often than not, policyholders face an occasion that requires them to call upon their insurance company for support, and when that happens you want to be sure you have the right team behind you.

At Central, we put hospitality and our relationships with our agents and policyholders first in everything we do, and claims that require subrogation are no different. Our Special Investigative Unit has handled hundreds of subrogation cases for policyholders since its inception. They’ve even gone as far as customizing their data analytics model so that it logs manufacturing recalls and reports, and helps to flag instances where a policyholder’s claim may not actually be their fault—something which ends up saving our policyholders a lot of money.

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The information above is of a general nature and your policy and coverages provided may differ from the examples provided. Please read your policy in its entirety to determine your actual coverage available.

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