Subrogation and How It Affects Policyholders

Subrogation is a concept that's understood among insurance and legal firms but often not by the people who employ them. If this term has come up when dealing with your insurance agent or a legal proceeding, it would be to your advantage to know the nuances of how it works. The more knowledgeable you are, the better decisions you can make with regard to your insurance company.

Every insurance policy you have is a promise that, if something bad happens to you, the insurer of the policy will make restitutions without unreasonable delay. If your house suffers fire damage, your property insurance steps in to compensate you or pay for the repairs, subject to state property damage laws.

But since ascertaining who is financially responsible for services or repairs is usually a confusing affair – and time spent waiting in some cases adds to the damage to the policyholder – insurance firms often opt to pay up front and figure out the blame after the fact. They then need a method to recoup the costs if, ultimately, they weren't in charge of the payout.

Let's Look at an Example

Your garage catches fire and causes $10,000 in house damages. Happily, you have property insurance and it pays out your claim in full. However, the insurance investigator finds out that an electrician had installed some faulty wiring, and there is a reasonable possibility that a judge would find him accountable for the loss. The home has already been fixed up in the name of expediency, but your insurance agency is out $10,000. What does the agency do next?

How Does Subrogation Work?

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 insurance firms have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Normally, only you can sue for damages done to your person or property. But under subrogation law, your insurer is extended some of your rights for making good on the damages. It can go after the money that was originally due to you, because it has covered the amount already.

How Does This Affect Policyholders?

For a start, if you have a deductible, your insurer wasn't the only one that had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – to the tune of $1,000. If your insurance company is timid on any subrogation case it might not win, it might opt to get back its costs by ballooning your premiums. On the other hand, if it knows which cases it is owed and goes after them efficiently, it is doing you a favor as well as itself. If all of the money is recovered, you will get your full deductible back. If it recovers half (for instance, in a case where you are found 50 percent responsible), you'll typically get $500 back, depending on the laws in your state.

Furthermore, if the total expense of an accident is more than your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as lawsuit lawyer springville ut, successfully press a subrogation case, it will recover your expenses as well as its own.

All insurers are not the same. When shopping around, it's worth looking at the reputations of competing companies to determine whether they pursue legitimate subrogation claims; if they do so quickly; if they keep their accountholders apprised as the case proceeds; and if they then process successfully won reimbursements right away so that you can get your deductible back and move on with your life. If, instead, an insurer has a record of paying out claims that aren't its responsibility and then safeguarding its profit margin by raising your premiums, even attractive rates won't outweigh the eventual headache.