Subrogation

It may sound like a medical procedure, but “subrogation” is a common and very important insurance policy provision.  An online legal dictionary defines it as:  “The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he or she who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or Securities.”  That seems a pretty dry description of a process that helps both you and your insurer manage claim costs.  The concept is used in all sorts of insurance situations from personal auto insurance to business. 

The reason it works to the benefit of both the insured and the insurer can be illustrated through an example.  Let’s say your neighbor wants to celebrate the fourth of July with a homemade fireworks display.  One of his bottle rockets goes astray and lands on the roof of your shed, reducing the shed to ashes.  You know that you can sue your neighbor because his negligence caused your loss, but you also have your own insurance policy.  Typically, your insurance company would step in to pay you for the damages to your shed, and then exercise the subrogation provision of your policy to recover from your neighbor (or his insurer).  In short, your claim is paid expeditiously and your insurer recovers the cost of the claim from your neighbor. 

Whether it is a homeowner’s policy or auto insurance, an insurance policy is a contract between the insurance company and the person or organization that wants protection. Eligible losses are limited to those that are the policyholder’s legal responsibility, but as in the illustration, there are times when a loss is settled under a liability policy; but someone else is responsible. The effort to recover payment made by your insurance company for your neighbor’s negligent use of fireworks illustrates “subrogation”. It is the legal right that allows the insurance company to take over a right held by their policyholder and once the insurer claims this right, it can pursue recovery from another person or corporation who is actually responsible for the loss.

In Washington auto insurance, if your insurance company pays a doctor for your treatment after an accident where someone else was at fault, your insurer can seek reimbursement from the at-fault person (or their insurance company).  If a deductible is involved in a claim involving subrogation, your insurer has to include your deductible in its subrogation demand to the at-fault party. After your company recovers costs, it will reimburse you for the deductible you paid. 

There are a couple of things to be aware of in subrogation, though.  First, if a loss investigation finds you are partially at fault, you will only recover a percentage of your deductible – if you are found to be at fault for 20 percent of the accident, then your insurer can recover only 80 percent of your deductible.  Worse still, if your insurance company pays your bills and you accept payment for the same bills from the other party’s insurance company your company will be looking to you for reimbursement. 

Subrogation is an important concept in insurance. When it is used, it helps to keep everyone’s costs down and it makes sure that liability insurance policies work as they are supposed to by making sure that the party who causes the loss pays.  

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