Subrogation
Definition
Subrogation is the legal right of an insurance company to pursue a third party that caused an insurance loss to the insured. This allows the insurer to recover the amount of the claim paid to the insured for the loss. Subrogation helps prevent policyholders from receiving double recovery and ensures the at-fault party ultimately bears the cost of damages.
Example
A water heater in a rental property fails and floods the unit, causing $15,000 in damage to the tenant's personal property. The tenant's renter's insurance pays the claim. The insurance company then subrogate against the water heater manufacturer if a product defect caused the failure, seeking to recover the $15,000 they paid out.
In Practice
Adjusters should always document potential subrogation opportunities during the initial investigation. Common subrogation targets include at-fault drivers, product manufacturers, contractors, and property owners. The insured must cooperate with subrogation efforts and cannot settle with third parties without the insurer's consent. Many claims departments have dedicated subrogation units that handle recovery efforts. Time limits (statutes of limitations) vary by state and claim type.