Subrogation and How It Affects Policyholders

Subrogation is a term that's well-known in legal and insurance circles but sometimes not by the policyholders who employ them. Even if you've never heard the word before, it would be in your benefit to know an overview of how it works. The more information you have about it, the better decisions you can make with regard to your insurance company.

Every insurance policy you own is a promise that, if something bad occurs, the insurer of the policy will make restitutions in a timely manner. If your vehicle is in a fender-bender, insurance adjusters (and the courts, when necessary) decide who was to blame and that party's insurance covers the damages.

But since figuring out who is financially accountable for services or repairs is sometimes a heavily involved affair – and time spent waiting in some cases increases the damage to the victim – insurance firms often opt to pay up front and assign blame afterward. They then need a path to recoup the costs if, when all the facts are laid out, they weren't actually responsible for the expense.

For Example

Your kitchen catches fire and causes $10,000 in house damages. Happily, you have property insurance and it pays out your claim in full. However, the assessor assigned to your case discovers that an electrician had installed some faulty wiring, and there is a decent chance that a judge would find him to blame for the damages. The home has already been repaired in the name of expediency, but your insurance agency is out all that money. What does the agency do next?

How Subrogation Works

This is where subrogation comes in. It is the method that an insurance company uses to claim reimbursement after it has paid for something that should have been paid by some other entity. Some companies have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Ordinarily, only you can sue for damages done to your person or property. But under subrogation law, your insurer is given some of your rights for making good on the damages. It can go after the money originally due to you, because it has covered the amount already.

How Does This Affect Individuals?

For one thing, if you have a deductible, your insurer wasn't the only one who had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – namely, $1,000. If your insurance company is unconcerned with pursuing subrogation even when it is entitled, it might choose to recoup its losses by upping your premiums and call it a day. On the other hand, if it knows which cases it is owed and pursues them enthusiastically, it is acting both in its own interests and in yours. If all ten grand is recovered, you will get your full thousand-dollar deductible back. If it recovers half (for instance, in a case where you are found 50 percent at fault), you'll typically get half your deductible back, based on the laws in most states.

Furthermore, if the total cost of an accident is more than your maximum coverage amount, you may have had to pay the difference, which can be extremely spendy. If your insurance company or its property damage lawyers, such as local criminal defense attorney Provo UT, successfully press a subrogation case, it will recover your costs in addition to its own.

All insurers are not the same. When comparing, it's worth measuring the records of competing companies to determine whether they pursue winnable subrogation claims; if they resolve those claims quickly; if they keep their policyholders advised as the case continues; and if they then process successfully won reimbursements quickly so that you can get your losses back and move on with your life. If, on the other hand, an insurance agency has a reputation of honoring claims that aren't its responsibility and then covering its profitability by raising your premiums, you'll feel the sting later.