Subrogation is an essential and important feature of nearly every type of insurance policy – Home, Auto, Business Property & Liability, Commercial Auto, Workers Compensation and Medical Insurance policies to name the most common. It helps lower insurance premiums and provides legal help for policyholders to recover deductibles and coinsurance while the insurance company recovers claim costs and expenses from a negligent responsible party.  

What is it?

In contract law “subrogation” is defined as the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.

In your insurance policies the actual word “subrogation” will not be found, but the concept is listed as the “Transfer of Rights of Recovery Against Others to Us”.  That means, after a claim, the legal rights of the insured are transferred to the insurance company to recover their claim payments from the negligent party.

How it works! 

The most common example is an auto collision accident where your car is rear-ended by an inattentive driver.  Your own insurance company repairs your vehicle (if you purchased collision coverage) minus your $500 deductible and also pays medical payments for your injuries.  Then your insurance company “subrogates” (negotiates, threatens or files a lawsuit) against the negligent driver and/or their insurance company to recover their claim costs.  Any money recovered first reimburses your deductible expense and then offsets your insurance company’s claim costs. You are required to not interfere with the insurance company’s rights of recovery but any litigation costs are borne solely by the insurance company.

Practical Limitations.

If the negligent party is uninsured or the cost of litigation is more than the expected recovery of claim costs, your insurance company may choose not to subrogate the loss.  This can be disappointing for you, especially if you did not have collision coverage or other first party coverage to pay your loss. You would then not recover your loss or deductible. However, you retain the right to sue at your own expense to try to recover claim costs, medical expenses, pain and suffering, and other damages.

Waiver of Subrogation.

It is fairly common in construction contracts and property leases for one or both parties to “waive” the right of subrogation.  Circumstances vary but usually this is done in combination with “hold harmless” agreements so each party to the contract will insure and pay their portion of a loss without regard to determining negligence. (eg: the landlord and tenant hold each other harmless and waive subrogation by their insurance companies to recover from the other party for a fire loss to the building.)

Your insurance policy allows you to block subrogation recovery by your insurance company if you waive this right in writing prior to a loss.  Most insurance companies request that you notify them when you waive subrogation rights.

CONTACT US

American Insurance agents routinely assist our customers in the review of insurance requirements in contracts and during the claim process in regards to subrogation. If you have questions or need assistance with any insurance need, you can contact us at your convenience.