Subrogation and How It Affects Policyholders

Subrogation is a concept that's well-known in legal and insurance circles but often not by the people they represent. If this term has come up when dealing with your insurance agent or a legal proceeding, it is in your self-interest to comprehend the nuances of the process. The more knowledgeable you are about it, the better decisions you can make about your insurance policy.

An insurance policy you hold is an assurance that, if something bad happens to you, the business on the other end of the policy will make good without unreasonable delay. If your vehicle is rear-ended, insurance adjusters (and police, when necessary) decide who was to blame and that party's insurance pays out.

But since ascertaining who is financially accountable for services or repairs is often a confusing affair – and time spent waiting sometimes compounds the damage to the victim – insurance firms in many cases decide to pay up front and assign blame after the fact. They then need a way to get back the costs if, ultimately, they weren't responsible for the expense.

Can You Give an Example?

You are in an auto accident. Another car collided with yours. Police are called, you exchange insurance details, and you go on your way. You have comprehensive insurance that pays for the repairs right away. Later it's determined that the other driver was to blame and her insurance policy should have paid for the repair of your vehicle. How does your company get its funds back?

How Subrogation Works

This is where subrogation comes in. It is the method that an insurance company uses to claim reimbursement when it pays out a claim that turned out not to be its responsibility. 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 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 originally due to you, because it has covered the amount already.

How Does This Affect the Insured?

For one thing, if your insurance policy stipulated a deductible, it wasn't just your insurer that had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – to be precise, $1,000. If your insurer is lax about bringing subrogation cases to court, it might opt to recoup its expenses by upping your premiums. On the other hand, if it knows which cases it is owed and goes after those cases efficiently, it is doing you a favor as well as itself. 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 culpable), you'll typically get $500 back, based on the laws in most states.

Additionally, if the total loss of an accident is over your maximum coverage amount, you may have had to pay the difference, which can be extremely expensive. If your insurance company or its property damage lawyers, such as workers comp attorney Reisterstown MD, successfully press a subrogation case, it will recover your expenses as well as its own.

All insurance companies are not the same. When shopping around, it's worth measuring the records of competing firms to find out if they pursue valid subrogation claims; if they do so quickly; if they keep their clients apprised as the case proceeds; and if they then process successfully won reimbursements immediately so that you can get your losses back and move on with your life. If, instead, an insurance firm has a reputation of honoring claims that aren't its responsibility and then covering its bottom line by raising your premiums, you'll feel the sting later.