What You Need to Know About Subrogation

Subrogation is a concept that's well-known in legal and insurance circles but sometimes not by the customers who employ them. If this term has come up when dealing with your insurance agent or a legal proceeding, it would be to your advantage to understand the nuances of the process. The more information you have, the better decisions you can make with regard to your insurance policy.

An insurance policy you own is a commitment that, if something bad occurs, the business on the other end of the policy will make good without unreasonable delay. If a blizzard damages your house, your property insurance steps in to repay you or enable the repairs, subject to state property damage laws.

But since figuring out who is financially responsible for services or repairs is often a confusing affair – and time spent waiting sometimes increases the damage to the victim – insurance firms usually decide to pay up front and assign blame later. They then need a path to recoup the costs if, when all the facts are laid out, they weren't actually in charge of the payout.

Let's Look at an Example

Your living room catches fire and causes $10,000 in house damages. Happily, you have property insurance and it pays out your claim in full. However, the insurance investigator discovers that an electrician had installed some faulty wiring, and there is reason to believe that a judge would find him liable for the damages. You already have your money, but your insurance agency is out $10,000. What does the agency do next?

How Does Subrogation Work?

This is where subrogation comes in. It is the method 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 done to your self or property. But under subrogation law, your insurer is given some of your rights in exchange for making good on the damages. It can go after the money originally due to you, because it has covered the amount already.

How Does This Affect Me?

For starters, if your insurance policy stipulated a deductible, it wasn't just your insurer who had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – to be precise, $1,000. If your insurer is timid on any subrogation case it might not win, it might choose to recover its losses by increasing your premiums. On the other hand, if it knows which cases it is owed and pursues them enthusiastically, it is acting both in its own interests and in yours. If all $10,000 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.

Additionally, if the total price of an accident is more than your maximum coverage amount, you may have had to pay the difference, which can be extremely spendy. If your insurance company or its property damage lawyers, such as wage garnishment defense attorneys jonesboro ar, successfully press a subrogation case, it will recover your costs as well as its own.

All insurance agencies are not the same. When shopping around, it's worth looking at the records of competing companies to determine if they pursue legitimate subrogation claims; if they resolve those claims quickly; if they keep their customers apprised as the case goes on; and if they then process successfully won reimbursements quickly so that you can get your money back and move on with your life. If, on the other hand, an insurer has a reputation of paying out claims that aren't its responsibility and then safeguarding its bottom line by raising your premiums, even attractive rates won't outweigh the eventual headache.