What is ‘Subrogation’ and How do I Benefit from It?

Subrogation:

(sub-ro-ga-tion) noun

The substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties.

Essentially, subrogation occurs in property or casualty insurance when a company pays an insured for their damages. After the insurance company pays for the claim, it then makes its own claim against others who may have caused the property or casualty loss, or contributed to it, in the first place. The insurance company might also make the claim against another person or company that insured the loss.

Subrogation is a legal right that allows a party (such as an insurance company) to make a payment that is actually owed by another party and then collect the money from the party that owes the debt after the fact. This is one of the ways insurance companies recover money that has been paid out in claims to their insured parties.

So, how does a policyholder or insurance company benefit from subrogation? There are a couple ways.

First, an insurance company with an effective subrogation department can offer much lower premiums to their policyholders. An “effective” subrogation department simply means that the insurance company is successful in recovering some of the monies that they’ve paid out on a claim. This makes sense—right? If an insurance company can recover the money they pay out, they can then charge less for the policy.

Second, any money that the insurance company recovers through subrogation goes directly to the insurance company’s bottom line. This means that an insurance company performs better based on their success in recovering through subrogation.

Although insurance companies can benefit from subrogation, many companies frequently leave large revenues uncovered by failing to properly pursue their subrogation interests. Successfully recovering a subrogation interest begins when the loss occurs and requires a claims person to recognize the theories of liability and rules of negligence that might give rise to the insurance company’s subrogation interest.

Subrogation is a term foreign to many people not familiar with the insurance world. However, the benefits that it can provide to both policyholders and insurance companies are significant. As a lawyer working with insurance companies to pursue their subrogation interests, I see first-hand the benefits that it can provide—not only to insurance companies, but to their policyholders as well. Questions? Contact our Sioux Falls, Sioux City, or Omaha office today!