What is Subrogation?

Defining subrogation, how it works, and why it can be a good deal for both you and your insurance company.

Oops. Someone may face subrogation after this

No one wants to get in an auto accident. No one especially wants to get in an auto accident against a negligent driver with no insurance. Needless to say, all sorts of problems can arise from that.

Fortunately there are several remedies for this situation. Hopefully you have uninsured and underinsured motorist coverage (UM/UIM) on yourself and your vehicle. That’s what it’s for.

Another remedy is subrogation. While subrogation is not something that an insured driver often considers, rest assured your insurance company considers it a big deal.

Defining Subrogation

What is Subrogation? Subrogation is an important behind-the-scenes player in many liability insurance claim situations, especially when an uninsured or underinsured driver is involved. In its purest form, subrogation is a legal concept in which one creditor unilaterally replaces another. When applied to the insurance industry, in certain situations it gives the insurance company the right to replace you as the entity which a negligent party must compensate.

This may not sound very fair. However, if your insurance company steps up to fix your car first, it actually makes a lot of sense for both you and them.

Why Subrogation Makes Sense

Regardless of whether one has insurance or not, legal liability is legal liability. This is the basis for  insurance subrogation. While subrogation can occur in many different types of insurance, it’s quite common in auto insurance.

In auto insurance, subrogation most often occurs when someone makes a collision or comprehensive claim to fix damage that was not their fault. This can occur in an uninsured motorist situation, or perhaps in an instance in which the other guy’s insurance company is taking too long to process a liability claim. As with any other full coverage claim, you pay your deductible and your insurance company takes care of the rest.

Subrogation may also apply in a UM/UIM claim situation, however there can be some additional issues with that. For example, in February 2009 the Florida Supreme Court ruled that an insurer must wait until a UM/UIM claim is closed before it can pursue any subrogation options against a negligent party in that state.

How Subrogation Works

Insurance companies will generally honor these claims with the knowledge they will subrogate against the guilty party to recoup their losses. This arrangement not only gets your car fixed, but also allows your insurance company to minimize their loss ratio, which in turn improves their bottom line and allows them to offer more competitive premiums later.

Subrogation can be as simple as insurance companies agreeing to reimburse each other in cases where claim payments are too slow. In some situations your insurance company may subrogate directly against the other driver, demanding that he or she reimburse them for your claim.

In these instances subrogation is similar to collections procedures. Your company and the other driver can negotiate a payment plan, with the driver making payments directly to your company. If necessary your company may sue the other driver to recoup its debt. If your insurance company is subrogating on your behalf, you don’t have to worry about what that other guy is doing or not doing. That’s the insurance company’s responsibility

Either way, realize you won’t see any benefit from subrogation procedures made on your behalf. Your insurance company already paid your claim, therefore the matter is now strictly between them and the other driver.