Subrogation

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Subrogation is the principle that allows an insurer to recover the expenses that it has paid out on a claim from a 3rd party. It enables the insurer to take over the legal obligation of the injured party and pursue the right to legal remedy on their behalf. This requires an agreement between the insured party and insurer and is often a standard part of an insurance policy. The insurer in this instance is the subrogee and the insured party is known as the subrogor.

Example of Subrogation

subrogation

It’s best illustrated with an example:

  • Someone (let’s call them Party X) is driving negligently and they crash into your car, they are at fault for the accident.
  • You have an insurance policy with “Insurance Company A” and that policy includes collision insurance, and so you make a claim with your insurance provider to have them fix your car.
  • Insurance Company A then pays you the full sum (less the deductible) required to repair or replace your vehicle, as per the terms of your policy.
  • However neither you, nor Insurance Company A is legally liable for the accident, that’s the responsibility of Party X.
  • In this instance Insurance Company A will then sue Party X on your behalf in attempt to recover either some or all of the money they paid out to you under the terms of your insurance policy.
  • If Insurance Company A is successful in suing Party X for all or part of the claim they paid out to you, they will retain the money obtained. This is considered to be equitable as your car has already been repaired or replaced by Insurance Company A and you have not incurred any financial loss as the result of the legal action.
  • If however Insurance Company A is not only successful in suing Party X for their negligence but also wins an amount in excess of that which was already paid out to support your original claim, this excess would belong to you.
  • Once this process has been completed you lose the right to sue Party X personally, this is to prevent you from recovering the same loss twice – this would be unfair to Party X.
  • In the case of subrogation Insurance Company A will nearly always have to sue in your name, and you will be required to cooperate reasonably with the proceedings because of this.

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