What Is Subrogation in Insurance?

Subrogation is an insurance company's legal right to recoup payments made to their insured from the at-fault party. For example, if your car insurance company pays for your repair bills, they can possibly get that money back by filing a subrogation claim against the at-fault driver’s insurance company.

Keep reading to learn how subrogation works and how it can actually benefit consumers.

Key Takeaways Subrogation allows an insurance company to recover payments made in a claim from a third party if that third party can be held liable. In general, the subrogation process would have the insurance company first pay for their insured’s losses and then seek reimbursement from the at-fault party afterward. It is possible for an insured to recoup some or all of their deductible if the subrogation claim settles favorably. Subrogation generally happens behind the scenes and isn’t something that the insured is involved in. Subrogation is seen across several insurance industries including auto, health, business and more.

What Is Subrogation in Insurance?

In the insurance world, subrogation refers to the process by which an insurance company seeks reimbursement for claim payments made to its policyholder from a third party who may be responsible for causing the loss or damage.

How Does the Process of Subrogation Work?

For a subrogation claim to happen, there must be three parties: you (the insured), your insurance company and a possibly liable third party. The subrogation process is relatively straightforward and can be broken down broadly into the four below steps.

1. You file a claim for a covered loss.
2. Your claim is approved, you pay your deductible and your insurance company pays your claim.
3. Your insurance company files a subrogation claim against the liable third party.
4. If the case settles favorably, reimbursement is issued to your insurance company and to you, possibly your deductible.

Subrogation claims are not always successful and there is always a chance that you will not be able to recover your deductible. In some cases, only a percentage of the deductible you paid will be returned to you. For example, if you paid a $500 deductible and you were determined 50% at fault, then you may only be able to recover $250.^[1]

Keep in mind that in a subrogation claim, your insurance company is acting on your behalf, so it is a process that you, the insured, are generally not directly involved in.^[2]

How Long Does Subrogation Take?

The time it takes to settle a subrogation claim can vary based largely on the details of the claim. For example, subrogation claims for auto claims can take up to a year or longer depending on the type of accident.^[3]

If one party was 100% at fault, then it may take quicker. However, if determining who was at fault is unclear, the fault is shared between multiple parties or in the case of a car accident, the at-fault driver was uninsured, then the process can take longer.^[4]

Why Do Insurance Companies Subrogate?

Insurance companies subrogate because it is in their financial interest to pass the cost paid to you in an insurance claim to the liable third party. In other words, they’re trying to get the party who’s really responsible to foot the bill.

Subrogation also has some benefits to consumers in general.

Benefits of Subrogation for Consumers

Firstly, subrogation ensures that policyholders are promptly compensated for their losses. Instead of waiting for a court of law to determine who was at fault — which may take several months — the policyholder can be reimbursed now and then the insurer can recoup their losses afterward.^[5]

Fulfilling insurance claims can be expensive and if they become more costly and frequent, these costs may be passed on to the consumer in the form of higher premiums. Since subrogation allows insurance companies to recoup some of their losses, it can result in keeping insurance rates more affordable for consumers.^[6]

Even if your insurance company is able to cover your expenses promptly, you’re still responsible for paying your deductible. If the subrogation claim goes well and is awarded in your insurance company’s favor, you may be able to recover some or all of your deductible.

Subrogation Examples

You can see subrogation claims across all types of insurance verticals. Below, we highlight some examples.

Car Insurance

Subrogation often comes into play in the auto insurance industry. For example, say you’re stopped at a red light but the car behind you does not stop in time and rear-ends you.

While the other driver is clearly at fault, you can still file a claim with your insurance company if you have collision coverage to get your repair costs covered. Your insurance company foots the repair bill and then goes after the at-fault driver’s insurance company to get reimbursed.

Health Insurance

Insurance subrogation claims are also seen in the health insurance industry. Let’s say you’re at a fast food restaurant and you slip on the recently mopped floor but there was no yellow wet floor sign. Your health insurance company covers the treatment for your broken arm and afterward, files a subrogation claim with the restaurant's insurance company because of their negligence.

Business Insurance

Business insurance companies also turn to subrogation to recoup payments issued to their policyholders. For example, let's say you own a manufacturing business and one of your employees gets injured while operating a piece of machinery that is discovered to have a manufacturing defect. After fulfilling the workers’ comp claim, your insurance company goes after the company that builds and installs the machinery to attempt to recover their losses.

What Is a Waiver of Subrogation?

A waiver of subrogation is a document that you sign that prevents your insurance company from recouping losses they paid in an insurance claim from a liable third party. In the auto insurance world, this might happen if the at-fault driver’s insurance company reaches out to settle directly with you instead of you going through your own insurance company.

In this type of case, signing a subrogation waiver is generally discouraged and there may even be a subrogation clause in your insurance policy that prohibits you from doing this. Instead, you should report all car accidents to your insurance company and if this happens, let them know that the other party is asking you to sign a waiver of subrogation.

In some business transactions, signing a waiver of subrogation can be a normal part of doing business. For example, a client may require you to sign a waiver of subrogation to reduce future conflict between you and them. However, since this increases the insurance company’s risk, your business insurance premium will likely go up.^[7]