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.

40 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!

    • What happens if the other party is at fault due to a leak, but my insurance coverage is limited to a maximum payment on mould damage, so there’s a large amount still outstanding as the difference that I have to pay to repair my home, in addition to my deductible, leaving me $10,000 out of pocket.
      Do my insurer use subrogation against the other party to get back just what my policy paid out or do they claim back the difference that I had to pay out in addition to the policy value they paid me and then when they get that back from the guilty party, pay me back all my out of pocket expenses plus the deductible. Or am I left with a huge bill and no option but to personally sue their insurer or the condo owner above me that caused the leak, personally?

      • Your insurance company can only subrogate against the at-fault party’s insurance company or the at-fault party directly for the amount of the loss that was covered and paid by your insurance company. If your insurance company determined the amount of the covered loss owed to you under your policy was $10,000, that is the amount they can seek reimbursement on through subrogation. Anything your insurance company did not pay toward your loss, you would need to work directly with the at-fault party’s insurance company or the at-fault party directly for resolution of your out-of-pocket damages. Every insurance company is different but some will present your out-of-pocket damages to the other insurance company as a courtesy but it is still your responsibility to work with the other insurance company to get reimbursed. If your insurance company has retained legal counsel to assist with their subrogation claim and collection efforts against the other insurance company or at-fault party, you may be able to work with that attorney to have them assist you in your reimbursement efforts. It is at least worth asking your insurance company about that possibility. If the at-fault party’s insurance company or the at-fault party does not have sufficient coverage or resources to fully reimburse your company’s subrogation claim and your out-of-pocket damages, you will need to work with your insurance company to determine how any recovery will be split up. How to split and share the proceeds of the recovery can vary by insurance companies’ business practices, applicable laws and the specific language in your policy. Hope this information is helpful and you are able to fully recover all you are entitled to for your claim. Thank you for reaching out!

  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?

    • 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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  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

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

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  13. Does an insured or carrier have independent rigths of subrogation in WC? Does it vary state to state

    • 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.

  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

  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!

  16. Hey, what if recovery is more than the amount paid by the insurers?

    • 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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  23. 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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  25. 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 ?

    • 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!

  26. I went to replace the dishwasher and bought one from Home Depot.  My out of state boyfriend is a plumber in Connecticut and said he would lend me a hand in installing the dishwasher.  I never had a contract with him, never paid him, and I bought all necessary parts need for this installation .

    He helped me install the Dishwasher.  It leaked to my downstairs neighbors unit.   I told the adjuster how my boyfriend helped me install the dishwasher.  

    The master insurance policy covered the damage and paid me and my down stairs neighbors.

    They subrogated my boyfriend for the whole amount of damage.  Turns out the condo bi-laws say that condo owners can’t be subrogated by the master insurance company.

    He was lending me a hand.  We had no contract and he was not working for me.  

    Is this right?

    • Meredith,

      Thank you for your question and loss scenario. It looks like you have quite a bit going on with your dishwasher loss. Unfortunately I am not an attorney and cannot provide legal advice but might suggest that your boyfriend may want to consult with legal counsel to discuss the situation further. In order to review the matter completely and determine whether the condominium association’s insurance company can subrogate against your boyfriend, someone would need to take a look at your condominium bylaws and declarations. This would confirm whether there are any waivers of liability between unit owners and unit owners and the condominium association as you indicated may be the case. Review of the condominium bylaws and declarations as well as review of any applicable statutes or case law would confirm whether the condominium association’s insurance carrier can pursue your boyfriend for any involvement he had in installing the dishwasher and resulting water loss. I can tell you that based on experience, insurance companies will pursue subrogation against anyone that is negligent in causing damage to their insured’s property regardless of whether it is a friend, non-resident family member, contractor or anyone else. This may sound harsh but is a reality based on the terms of the policy’s right of recovery or subrogation provisions. It may also be a good idea for your boyfriend to report a claim to his insurance carrier, whether a homeowners, renters or commercial policy to see if they can become involved, respond and provide coverage on his behalf for any liability he may have in the loss. I hope this helps provide some insight to your situation. Thank you for reading my blog and responding with a question. Good luck!

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