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Subrogation in insurance is a legal process where an insurance company steps into the shoes of the insured to recover costs from a third party responsible for causing a loss. This means that if someone else is at fault for a damage or loss, your insurer can seek to get the money back from that party after they have paid your claim.

What is Subrogation in Insurance?

Subrogation is an important concept in insurance that helps ensure fairness and efficiency in handling claims. When an insurance company pays a claim to its policyholder for a loss caused by a third party, the insurance company gains the right to pursue reimbursement from the party responsible for the loss. This process helps the insurance company recover some or all of the money it paid out, which can help keep insurance premiums lower for everyone.

For example, let’s say your business’s delivery van is damaged in an accident caused by another driver. You file a claim with your insurance company, and they pay for the repairs to your van. Through subrogation, your insurance company can then seek to recover the cost of those repairs from the driver who caused the accident or their insurance company.

Subrogation Graphic Insurance Glossary

Key Components of Subrogation

Subrogation involves several key components:

  1. Right of Recovery: When you file a claim and receive payment from your insurance company, you transfer your right to recover the amount of the loss from the third party to your insurance company. This transfer is usually outlined in your insurance policy.

  2. Third-Party Liability: For subrogation to occur, there must be a third party that is legally responsible for the damage or loss. This could be another driver in a car accident, a manufacturer of a faulty product, or any other entity whose actions or negligence caused the loss.

  3. Reimbursement: Once your insurance company has recovered the money from the third party, they will typically reimburse you for any deductible you paid as part of your claim. This ensures that you are made whole and not out of pocket for costs associated with the loss.