What Is Subrogation in Insurance?

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Subrogation is an insurance company's legal right to act on a policyholder's behalf to recover their losses. If an accident is not your fault and your insurance company pays for repairs and medical expenses, subrogation gives them the legal right to recoup the costs associated with that accident from the at-fault third party. If your insurance company is successful in its efforts, you will get back all or some of your deductible, and your coverage rate will not increase. However, sometimes there is a fee for subrogation. 

What Is Subrogation in Insurance?

Subrogation is most often used in auto insurance, but it's also used in health and business insurance. 

Subrogation in Auto Insurance

If you have collision insurance, you're covered whether an accident is your fault or not. However, sometimes, an insurance company will cover the costs of repairs and medical bills for you, the policyholder, and later recoup those costs from the at-fault driver. It's likely that if you read your car insurance policy, closely, you'll find a subrogation clause in your contract allowing your insurer to take action on your behalf. 

Subrogation in Health Insurance

Let's take a collision accident which was not your fault. Chances are that your health insurance would cover your medical bills immediately and later collect the costs from the at-fault driver. The same would apply if you were simply walking down the street and were injured by car.

Subrogation in Business Insurance

Workers compensation is a type of business insurance that uses subrogation to act on behalf of an injured employee to recoup costs from a negligent third party after covering costs by paying a workers compensation claim. The insurance company can represent the injured worker in court too.

Why Does Subrogation Happen?

Subrogation allows an insurance company to assume costs on behalf of the policyholder, to ease the financial burden of medical care and/or repairs. However, each policy with a subrogation clause allows the insurer to recoup costs that are the responsibility of the at-fault third party.

The Benefits of Subrogation

Insurance companies cannot seek subrogation to the same extent in all states. Some states recognize pure contributory negligence, which means you can't recover your losses if you're even partially to blame for an accident. Other states recognize comparative fault, which means your level of responsibility will determine your monetary reward.

If your carrier plans to subrogate, it must inform you of that action.

An individual insurer may choose not to pursue its legal right to subrogate. If your carrier plans to subrogate, it must inform you of that action. Not only that, the amount of your deductible must be included in the total amount your carrier seeks to recoup. Here are some other benefits of subrogation:

  • Lowers coverage costs for everybody

  • Reduces the overall number of lawsuits

  • Expedites the payment of the injured party's claim amount

  • Allows an injured party to avoid the lawsuit process

  • Prevents an injured party from collecting twice on the same claim

Subrogation facilitates an out-of-court settlement. If carriers were not allowed to subrogate claims, they would be forced to raise their premiums to cover their losses.

The Subrogation Process

Subrogation typically starts with an accident. For example, let's say Joyce's vehicle is rear-ended by John's car, an event that results in injuries and a damaged car for Joyce. If John's insurance company does not respond to Joyce's claim in a timely manner, Joyce's insurance company may elect to pay for her injury bills and car repairs, then pursue the subrogation process.

In the Subrogation Process, Your Insurance Company Pays Your Claim

When your auto insurer commits to subrogation due to an unforeseen delay by the carrier of the other driver, it generally means your carrier will cover your losses. That's good news, because subrogation claims can last up to six months, sometimes years.

Your carrier will seek recovery of its own costs as well as any of your own.

Once you have given your auto insurer all the necessary documentation and filed your insurance claim, there's nothing else for you to do if your company decides to pursue a subrogation claim. Your carrier will seek recovery of its own costs as well as any of your own.

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What If the Other Driver Doesn't Have Insurance?

If an uninsured motorist or underinsured motorist is held liable for an accident in which you were involved, either you or your carrier can sue the at-fault driver. However, if your insurer chooses to subrogate, you cannot litigate.

As a practical matter, an insurer will not legally pursue subrogation if the uninsured or underinsured motorist doesn't have the assets to satisfy a successful claim. In that case, you probably wouldn't spend money on a lawyer, either.

If you have uninsured/underinsured motorist protection and you're involved in a fender-bender in which the uninsured/underinsured motorist is held liable, your uninsured/underinsured coverage will pay out under the terms of your policy. Using subrogation, your carrier can still seek reimbursement, including your uninsured/underinsured deductible, from the negligent third party.

No-Fault States and Subrogation

In no-fault states, each insured party is covered by their own insurance carrier, no matter who is at fault. The 12 no-fault states are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.

In states where the insured party is allowed to litigate, their insurance carrier is allowed to subrogate.

Subrogation and Health Insurance Companies

Health insurance carriers use subrogation to recover their losses and keep their rates low. Here are some typical instances of subrogation with health insurance:

  • Your personal insurance protection (PIP) or MedPay is liable.

  • Your workers compensation is liable.

  • A property owner is liable.

  • A company is liable.

A health insurance subrogation release is a form that is signed with the intent to release parties of any remaining liability in a legal situation. Typically they are signed after recovery has been fully completed.

Subrogation and Business Insurance

A business insurance carrier, in most cases, has the legal right to recoup funds it has already paid to policyholders. Here are a few examples of the subrogation clause in effect:

  • If a company's delivery truck gets sideswiped by an out-of-control vehicle, the company's commercial auto insurance will pay for the damage. After that, the insurer can seek to recoup its losses as well as the insured company's deductible from the at-fault driver.

  • If a worker is injured by a third party, workers' compensation will pay for the insured worker's medical expenses, lost wages, physical therapy and other expenses. After that, the insurer can seek to recoup its losses as well as the insured company's deductible from the at-fault third party.

If your business's insurer pays an insurance claim when a third party is to blame, that insurer will most likely subrogate, which means your business may get back its deductible.

What Is A Waiver of Subrogation?

Sometimes, a guilty third party may want to reach an out-of-court settlement with the injured party. In this process, the insured waives their rights to subrogation. Once you sign this waiver of subrogation, your insurance company will be powerless to access its right to subrogate and recover on your behalf. If something goes wrong with your settlement, your carrier will be unable to help you.

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