Subrogation: The Right to Recovery

Video-Images-INS101-SubroSUBROGATION – How’s that for a $.10 insurance word?  I suspect most of you do not know what subrogation is unless you’ve previously had a loss involving it.

According to Black’s Law Dictionary (you know it’s serious when I quote a legal dictionary!), subrogation is defined as “the principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.” (Black’s Law Dictionary, Abridged 7th ed., 2000).  OK, now we’ve defined it, but what does that really mean?  I will try to put subrogation in practical terms to show you how it works.

Let’s assume you have the unfortunate experience of a fire loss resulting from the electrical failure of a newly purchased and installed dishwasher.  Your insurance company will pay for your loss per the terms and conditions of your insurance policy.  Since the fire is a result of the dishwasher manufacturer’s negligence, that makes the manufacturer liable for your damages.  Once your insurance company pays you for the loss, they become subrogated for those payments against the dishwasher manufacturer.  Normally, you would have a claim against the dishwasher manufacturer but once your insurance company pays you for your damage, your claim against the manufacturer is transferred from you to your insurance company.  This is called an assignment.  Your insurance company then has the right to recover those payments they’ve made to you from the dishwasher manufacturer for their liability in causing the fire and resulting damage.

The insurance company will pay for covered damages minus your homeowner’s deductible.  You will still have the right to recover your deductible as well as any other damages that were not paid by the insurance company from the dishwasher manufacturer. However, your insurance company will not likely be able to assist you in recovering any additional out-of-pocket losses not paid for under the insurance policy because they have no legal interest or recovery rights in those damages they did not pay.

Almost every insurance policy contains an insurance condition for subrogation.  That condition will typically indicate if you have a right to waive subrogation prior to a loss and will indicate the insurance company’s right to an assignment against liable parties for losses the company pays for.  Additionally, the subrogation condition will outline your responsibility in cooperating with the insurance company in their subrogation efforts for losses they paid.  Your insurance company may have you sign a subrogation receipt once they have paid the claim which confirms the amount of the loss, the company’s assignment for what they paid and your agreement to assist the company in recovering their payments for the loss.  When you are attempting to collect out-of-pocket expenses against someone responsible for your damage, make sure you do not release that party from any other damages they are responsible for.  Doing so may prevent your insurance company from being able to pay your claim if their rights to recovery have been eliminated, violating your policy’s subrogation condition.

Hopefully I have provided some insight into the world of subrogation and what it may mean to you in the event of a loss.  I would love to hear from you if you have experienced any losses involving subrogation to see how the claims process went for you.

36 Comments on “Subrogation: The Right to Recovery

  1. I am glad you are enjoying your weekend. I hope you enjoyed my blog and found the information on subrogation helpful. Thank you for the comments!

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  2. Hi During the claim who owns the burnt out dishwasher? If it has been taken away for examination can the householder demand it’s return?

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    • Typically, up until the time the insurance company pays you for the value of the dishwasher, it is yours. Once the insurance company pays you for the value of the dishwasher, it typically becomes the property of the insurance company. Think of it as the insurance company buying the dishwasher from you. Once the insurance company pays you for the value of the dishwasher and they take possession of it, they can usually do whatever they like with it. Usually you cannot demand the washer be returned back to you once the insurance company pays you for it and takes possession of it, but often times they will work with you if you would like to buy the unit back as salvage once they are through with it. You would need to speak with your insurance company to see if they are willing to sell the washer back to you and at what cost. You may want to review your specific policy to see if it outlines any other rights you or your insurance company may have under the terms of your policy regarding the insurance company’s right to retain property once they pay you for it and if you have any specific rights regarding salvage and your rights for retaining possession of damaged property. Keep in mind also, the insurance policy may have a condition requiring you to make the washer available for inspection by the insurance company as often as reasonably needed and to cooperate with their investigation of the claim. If there is subrogation potential for your claim, the insurance company may ask to take possession of the washer before they have issued payment to protect the dishwasher from additional damage or a change in its condition due to other repairs in the vicinity or disturbance of the unit by yourself or other parties. If you would not allow the insurance company to retain possession of the unit to preserve its condition and protect the company’s recovery opportunities for your loss, it could impact their ability to pay you for the claim if the condition of the unit is not preserved and their subrogation potential is jeopardized. Again thanks for your comments and interest in this subject.

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  5. Asking questions are actually good thing if you
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  6. Just curious, typically is it usual practice ( but never admitted) for an insurance company to be awkward during a settlement or drag out a claim in order to rack up high expenses in order to get a higher value in their settlement off the manufacturer. Would a subrogation claim attract more experts requiring a percentage than an accidental fire/flood etc. By the way your answers are excellent

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  7. Thanks Shonda, I wasn’t refering to your company or any company in particular.

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  8. Hey there! I know this is kind of off-topic however I had to
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  11. Thanks for letting us know about the trouble you’re experiencing Latisha. I don’t believe we are experiencing any trouble with our web host. Maybe try closing your web browser and re-opening?

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  12. Wonderful site. Lots of helpful information here. I am sending it to a few pals ans also sharing in
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  13. Does an insured or carrier have independent rigths of subrogation in WC? Does it vary state to state

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    • Subrogation varies greatly by state for workers compensation claims. Many state statutes apply and outline subrogation rights of the insured and carrier. Thanks for reading my blog and commenting. I hope you found the post informative.

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  14. I was at fault in a car accident with only PIP coverage in Florida. The other driver must have collected $10,000 from her insurance because they appear to be exercising their right to collect that money from me. Would that be a form of subrogation? If so, what shud I do? Is there some way to pass this responsibility onto my insurance company? Will I need a lawyer. If she was not injured, is she entitled to the money she was paid? I only busted her back tail lights and she drove off after talking to the police while I had to be towed. If she didn’t make a hospital visit or lose any wages, is there a way to be get out of this situation with her insurance company? I really need a cost effective solution. Thank you

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  15. Stacey, you definitely need to report this claim to your auto insurance carrier so they can respond to this claim on your behalf.

    I am unable to comment on whether the other insurance company properly paid the claim as there are many factors that are taken into consideration when an insurance company pays claims for their policyholders. Payments are impacted by the terms of the coverage the other party has as well as the damages they claimed.

    It does appear the other insurance company is subrogating you for the claim they paid to their policyholder. If you have insurance coverage to assist you with this claim, your insurance carrier will address your concerns on what was paid with the other insurance company.

    I hope this helps and good luck with your claim. Thank you for reading my blog!

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    • It would be unusual for an insurance carrier to recover more than they asked for in a subrogation claim. I can’t think of any examples as to when that would happen unless there was a clerical error in either presenting the claim or the other insurance carrier paying for the claim. I hope this answers your question. If you have a specific example, I would be more than happy to comment on it. Thanks for reading my blog, I hope you found it imformative.

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  22. Why is it necessary to sue your own insurance company to collect your uninsured motorist coverage in a major accident when the other party was indeed uninsured?

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  24. How will be the insured or insurance company prove sole responsibility for any claim to the party accused of responsibility . What is the process that an insurance company should follow before it goes into subrogation. Is there no lead time allowed for negotiations on the claimed amount for recovery if the amount is inflated. In the case of home repairs for example, how do you verify that the amount to be recovered is reasonable ?

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    • Shila thanks for your question. The extent and cost of damage is not always cut and dry. Typically the insurance company pursuing a subrogation claim has the obligation to prove the damages they paid are reasonable and appropriate for the reimbursement they are seeking. Sometimes this requires negotiations between the parties if they cannot agree on the amount of damages one side is able to collect from the other side. An insurance carrier will determine if there is a potential subrogation claim based on the facts of the loss that show their policyholder incurred damage that is the result of another party’s action, inaction, error or negligence. Once the insurance company issues payment to their policyholder and they determine they have a right of subrogation against the other party, they will pursue recovery against that other party. Normally the insurance company will put the other party on notice that they will be pursuing recovery for payments they expect to make on behalf of their insured. In order for the insurance company to recover the full amount they paid the policyholder, they need to convince the other party responsible for the damage or their insurance carrier that the amount paid is reasonable and appropriate to put the insured back in the same condition as prior to the loss. If the parties don’t agree, negotiations, arbitration or litigation may be used to come to an agreement or binding decision. I hope this helps with your question and thank you for reading my blog!

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