Subrogation and How It Affects Policyholders

Subrogation is a concept that's understood among insurance and legal professionals but sometimes not by the people who hire them. Even if it sounds complicated, it would be in your benefit to comprehend an overview of how it works. The more knowledgeable you are, the better decisions you can make with regard to your insurance company.

Every insurance policy you hold is an assurance that, if something bad happens to you, the insurer of the policy will make restitutions without unreasonable delay. If your vehicle is rear-ended, insurance adjusters (and the courts, when necessary) determine who was to blame and that party's insurance pays out.

But since determining who is financially responsible for services or repairs is regularly a tedious, lengthy affair – and delay sometimes adds to the damage to the victim – insurance firms usually decide to pay up front and figure out the blame later. They then need a way to recover the costs if, when there is time to look at all the facts, they weren't actually in charge of the expense.

Can You Give an Example?

Your bedroom catches fire and causes $10,000 in house damages. Luckily, you have property insurance and it pays for the repairs. However, the insurance investigator finds out that an electrician had installed some faulty wiring, and there is reason to believe that a judge would find him to blame for the loss. You already have your money, but your insurance company is out all that money. What does the company do next?

How Does Subrogation Work?

This is where subrogation comes in. It is the way that an insurance company uses to claim reimbursement when it pays out a claim that turned out not to be its responsibility. Some insurance firms have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Normally, only you can sue for damages to your person or property. But under subrogation law, your insurer is extended some of your rights in exchange for having taken care of the damages. It can go after the money that was originally due to you, because it has covered the amount already.

Why Does This Matter to Me?

For a start, if you have a deductible, your insurer wasn't the only one who had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – namely, $1,000. If your insurer is lax about bringing subrogation cases to court, it might opt to recoup its costs by raising your premiums and call it a day. On the other hand, if it knows which cases it is owed and goes after those cases aggressively, it is acting both in its own interests and in yours. If all of the money is recovered, you will get your full deductible back. If it recovers half (for instance, in a case where you are found 50 percent accountable), you'll typically get half your deductible back, based on the laws in most states.

In addition, if the total expense of an accident is more than your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as medical lawyer Frederick Maryland, pursue subrogation and succeeds, it will recover your expenses as well as its own.

All insurance agencies are not the same. When comparing, it's worth looking at the reputations of competing firms to evaluate whether they pursue winnable subrogation claims; if they resolve those claims in a reasonable amount of time; if they keep their accountholders posted as the case goes on; and if they then process successfully won reimbursements right away so that you can get your funding back and move on with your life. If, instead, an insurance agency has a record of honoring claims that aren't its responsibility and then covering its profitability by raising your premiums, you'll feel the sting later.