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Understanding Subrogation in Insurance

What Is Subrogation?

Subrogation is when an insurance provider seeks reimbursement from an at-fault party in an attempt to recover the losses they paid to cover the insured’s claim. A subrogation clause is a legal principle commonly found in many types of insurance, including health insurance, auto insurance, and home insurance

Usually, the insurance company will pay the claim and then turn to the person responsible to seek reimbursement. You see this often on auto insurance claims, but it can also happen for health or home insurance. An insured could also receive reimbursement for any deductible paid. 

Who’s Involved In Subrogation?

There are multiple parties involved in subrogation. The insurance company is involved in getting reimbursed for the claims paid to you as the policyholder. You are involved as the individual who suffered damages to begin with. The responsible party and their insurance company are an active part of the subrogation claims process. Lastly, depending on the claim, witnesses could also be called to testify during the process.

How Subrogation Works

Most of the time, when subrogation is happening, it is simple for you as the policyholder because the insurance company handles most of it on your behalf. It is still essential to understand the process so that if you ever find yourself in the subrogation process, you know how to handle it. 

  1. Incident occurrence: Of course, for subrogation to even be a consideration, there needs to be an incident that causes a claim. This could be a car accident, injury, health issue, or other event that could be covered by insurance. 
  2. Policyholder files claim and is compensated: You then file a claim after the incident with your insurer, and they pay the claim if it is covered. 
  3. Insurer identifies the at-fault party: If you were not the at-fault party, the insurance company identifies who is and will decide to subrogate or not. Subrogation is up to the insurer, not the policyholder. 
  4. Insurer begins subrogation claims process: The insurance company will then contact the at-fault parties’ insurer and open a subrogation claim. 
  5. Insurers enter negotiation and reach settlement: Typically, the insurance companies will discuss the claim and negotiate a settlement. This can happen quickly if there is no doubt who is at fault based on evidence. 
  6. Legal action, if necessary: If, for any reason, the at-fault party doesn’t have insurance or the insurer is not happy with the outcome, they may choose to take legal action. 
  7. Recovery and reimbursement: Payment will then be made from the at-fault party’s insurance company based on the negotiation terms or legal action. 
  8. Finalization and resolution: If you paid any deductibles, all payments are distributed to you, and the claim is then closed. After this process, the claim will not count against you. 

How Health Insurance Subrogation Works

Your health insurance company may pursue subrogation if they paid medical expenses for an injury you suffered because of a third party. The health insurance company would pay your claim and then seek reimbursement from the person responsible or their insurance company. Various situations, including car accidents, workplace injuries, and medical malpractice, may lead to this. Insurance companies subrogate to keep premiums lower and recoup some of their costs.

The following are hypothetical scenarios of health insurance subrogation:

Workplace Injury

You are injured at work, and your health insurance pays for your surgery and rehabilitation. But after identifying that faulty equipment led to your injuries, your health insurance company initiates a subrogation claim against the equipment manufacturer’s liability insurance. The equipment manufacturer’s insurance company agrees to the claim and reimburses the medical costs to your health insurance company.

Auto Accident Injury

You are in a car accident that causes injuries and an overnight stay in the hospital. The health insurance company will pay for medical expenses. However, when they discover that you were not at fault, and the person who was happened to be on their phone and distracted, they could subrogate against them or their insurer. The insurer will reimburse your health insurance company for the medical costs. 

Business Injury 

You are injured during grocery shopping because you went to turn the corner and slipped and fell. After investigation, there was water puddling on the floor, and no attempt was made to reduce or clean it up. There was no signage indicating a wet floor. Your health insurance company may then subrogate against the store and its insurer.

How Home and Auto Insurance Subrogation Works 

Your home or auto insurance provider may pursue subrogation if your property is damaged, and your insurance company covers the repair costs but then finds out another person or party was at fault. 

This could occur in various scenarios, such as:

Other Party Negligence

A contractor is working on your home and neglects to put away materials when he goes for lunch, and a giant ladder falls into your home, causing structural damage. Your homeowner’s insurance company will cover the damages but will likely seek subrogation from the contractor and his insurance company. 

Newly Identified Perpetrator

You leave the fun concert you just attended, only to find that your car is damaged, and no one left a note. This hit-and-run accident is frustrating because now you have to make a claim on your auto insurance policy and possibly pay a deductible. However, later you discover cameras in the parking lot, and the insurance company can identify the person who hit your car. They can then subrogate against them and their insurer to seek reimbursement, including your deductible. 

Does Subrogation Impact You as a Policyholder?

As a policyholder, subrogation has little impact on you. Usually, you won’t be involved in the process as the insurance company works with the other parties’ insurers to come to a settlement or agreement. 

You are only usually impacted because your insurance company reimburses you during the claims process. If you had to pay a deductible, you could be reimbursed if they subrogate. It also helps prevent your insurance premiums from increasing because it helps keep the insurance company expenses low and doesn’t show as an at-fault accident on your record. 

Your Rights In Subrogation 

You have the right to waive subrogation. If you do not waive the process, you must cooperate throughout and provide any information requested from the insurance company. It’s important to review your policy carefully and talk to your insurance agent to ensure you fully understand your role in the subrogation process. 

What You Should Know About Waivers of Subrogation

When you waive subrogation, your insurance carrier forfeits the right to seek compensation or reimbursement from an at-fault third party for the loss they paid you at claim time. This can often cost an additional premium. You will see a requirement for a waiver of subrogation in many construction agreements.

There will be times when you can’t avoid waiving subrogation, like in a contract situation. Just be careful because it could cost you in the long run with your insurance premiums if your insurance company can’t seek reimbursement for claims paid. 

What This Means For You

When an accident, injury, or damage occurs, your insurer can recover expenses paid from the at-fault party or their insurance company through subrogation. When your insurance company subrogates a claim, they seek to be reimbursed for claims expenses paid to you. This allows your insurance company to pay your claim quickly and then recoup the money they paid to you to keep your costs down. 

Frequently Asked Questions

Subrogation will not negatively affect your insurance premiums. It can help keep your insurance costs down. When an insurance company is reimbursed for claims they have paid, it keeps their overall expenses down, which means they don’t need to increase their premiums. 

You can waive subrogation, but usually, this costs an additional premium and is not always beneficial to you in the long run. In general, the subrogation process only requires a little from you as the policyholder. You just need to provide any information about the incident. Other that that, your insurance company will take charge of the process.

If both insurers can’t reach a settlement or agreement, they may have to contact a mediator. They may end up in court if the mediator can’t get them to agree. 

If the at-fault party refuses to pay, your insurance company will take legal action. There may be a judgment placed against the party or their insurance company. Luckily, this doesn’t happen too often. 

Subrogation still applies if the at-fault party is uninsured. The insurance company will still seek reimbursement and likely go to court. Unfortunately, this doesn’t always end well with the insurer being reimbursed since most uninsured drivers don’t have the funds to be able to do so. However, it could result in a judgment against them and garnished wages.