Subrogation refers to the act of one party taking legal action against a third party in place of the aggrieved party.
For example, party A is aggrieved by the actions of party B. Party C then legally takes the place of party A to take legal action against party B.
When such circumstances arise, the process of substituting one party for another is called subrogation.
This is sometimes referred to as the insurance company “stepping into the shoes of the insured”. And thus, have the same legal standing as the policy holder.
Subrogation states the rights of the insurer should claims be made.
This is most commonly observed when an insurer assumes the position of the insured to pursue damages against a third party who is responsible for the event that caused the claim of the policy holder.
Subrogation typically occurs when an insured person or entity makes a claim from the insurer. The insurer conducts investigation and pays the claim made. As the investigation determined that the third party can be held legally accountable for the event that caused the claim, legal action (subrogation claim) is taken by the insurer for damages against the third party to recoup the money.
It should be added that when the insured receives funds from the claim, it usually implies that he or she cannot take further legal action against the third party who is at fault.
This is usually written in the insurance contract in plan language, or in legal jargon.
A good example of subrogation that most adults might be familiar with is in the process of making claims against car insurance.
When a driver gets into an accident due to the errors of others, maybe by being crashed into from behind, the driver makes a claim for the costs of repairs billed by the workshop.
The insurer then either pays the workshop directly for the repairs and replacement of parts or reimburse the policy holder for the expenses he had paid. After which, depending on how they view the case, legal action might be taken against the driver at fault for the financial losses incurred by the insurer.
This is assuming that the insurer is unable to work out a deal with the third party’s insurance company for an agreed settlement.
If some form of mediation is able to resolve the problem, then no legal action would be take against the third party.
The third party’s insurer would then most likely recoup the loss via increased auto insurance premiums.
Subrogation is usually a default term that is written into policies that makes sense. If a client demands a waiver of subrogation, he or she would most likely be either met with outright refusal or a higher insurance premium.
This is because without this provision, an insurance company would be carrying more risks.
Subrogation is not limited to auto insurance and can exist in other types of policies such as personal accident plans as well.