Subrogation is a technical term to describe a situation in which your insurance company steps in to get back money from a third party who caused damages or losses to you or your property.
Subrogation: a definition
Let’s start from the top.
Subrogation refers to the legal right of an insurance company to try and recover claims payments to its policyholders for damages or losses caused by a third party, from that party and/or their insurer.
A more literal definition refers to the legal right of an insurance company to sue a third party on your behalf to minimize losses and seek repayment from the real source of the injuries or damages.
Say someone caused serious damage to your place. You paid for the damages and submitted a claim to your insurer, which they paid out (minus your deductible, of course). Your insurance company is left with a huge bill for something that you, the policyholder didn’t even cause!
That’s where subrogation comes in. Because the claim has been paid, your insurer has the ability to try and reclaim that money by suing whoever was at fault, or their insurance company.
A real life example highlighting subrogation
Your kitchen catches on fire, and you file a claim with your insurance company. Your insurance company pays you $10,000 for the damage done, but then finds out the fire was caused by your negligent neighbor, who lit a candle in your kitchen and didn’t put it in a glass jar or take any other safety precautions.
Your insurance company has the ability to sue your neighbor and recover the $10,000 they paid you for your claim and the money you paid out – your deductible!
If you did not have your own homeowners insurance, you’d have the right to sue your neighbor for the damages (not a fun situation to be in, of course). But since you do have insurance, and your insurer compensated you for those damage, your right to sue your neighbor just got transferred over to your insurer.
This transfer is called subrogation: Allowing your insurer to sue a third party (your neighbor) to recover losses they paid out to you (in this case, $10K in fire damage).
The subrogation clause and your policy
You’ll usually find a clause in your insurance policy that explicitly allows your insurance company the right to sue a third party for losses/damages on your behalf.
This clause is known as the subrogation clause, and grants this legal right to your insurance company.
Overall, subrogation processes usually take place between insurance companies, and without your involvement. So the good news is that it’s nothing you’ll have to personally stress over.