Insurance
Subrogation
Subrogation is the insurance principle that allows an insurer, after paying a claim, to assume the policyholder's legal right to recover damages from the third party responsible for the loss.
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Exam Tip
Subrogation = insurer's right to recover from at-fault party after paying claim. Insured can't collect twice (double recovery).
What is Subrogation?
Subrogation is a legal principle in insurance where, after an insurer pays a claim, the insurer "steps into the shoes" of the insured to pursue recovery from the party responsible for the loss. This prevents the insured from collecting twice and allows insurers to recover claim payments.
How Subrogation Works
- Loss Occurs - Third party causes damage to insured
- Claim Filed - Insured files claim with own insurer
- Claim Paid - Insurer pays the insured for the loss
- Rights Transfer - Insurer gains insured's right to sue
- Recovery Pursuit - Insurer seeks recovery from at-fault party
Subrogation Example
| Step | Auto Accident Example |
|---|---|
| Event | Other driver runs red light, hits your car |
| Your Action | File claim with your insurance |
| Insurer Pays | Your insurer pays for repairs ($8,000) |
| Subrogation | Your insurer sues other driver's insurer |
| Recovery | Your insurer recovers $8,000 |
| Deductible Return | You may get your deductible back |
Types of Subrogation
| Type | Description |
|---|---|
| Equitable | Based on legal principles of fairness |
| Conventional | Created by contract language |
| Statutory | Required by law |
Subrogation Waiver
In some cases, subrogation rights can be waived:
- Construction contracts often require waiver
- Lease agreements may include waiver
- Workers' comp has limited subrogation rules
- Some policies allow waiver for additional premium
Key Principles
| Principle | Description |
|---|---|
| No Double Recovery | Insured can't collect from both |
| Insurer First | Insurer reimbursed before insured gets excess |
| Made Whole Rule | Some states require insured be fully compensated first |
| Cooperation Required | Insured must cooperate with insurer |
When Subrogation Doesn't Apply
- Insured caused their own loss
- Loss covered by no-fault insurance
- Subrogation waiver in effect
- Workers' compensation (varies by state)
- Some life insurance situations