Subrogation and How It Affects Policyholders

Subrogation is a concept that's understood among legal and insurance firms but often not by the customers they represent. Even if you've never heard the word before, it would be to your advantage to know the steps of how it works. The more knowledgeable you are, the more likely it is that an insurance lawsuit will work out in your favor.

An insurance policy you hold is a promise that, if something bad happens to you, the business that covers the policy will make good in one way or another without unreasonable delay. If your house is burglarized, for instance, your property insurance agrees to repay you or facilitate the repairs, subject to state property damage laws.

But since ascertaining who is financially accountable for services or repairs is usually a tedious, lengthy affair – and delay sometimes adds to the damage to the victim – insurance firms often opt to pay up front and figure out the blame later. They then need a means to recoup the costs if, when there is time to look at all the facts, they weren't responsible for the payout.

Let's Look at an Example

Your kitchen catches fire and causes $10,000 in house damages. Happily, you have property insurance and it takes care of the repair expenses. However, the insurance investigator discovers that an electrician had installed some faulty wiring, and there is a decent chance that a judge would find him accountable for the damages. The home has already been repaired in the name of expediency, but your insurance agency is out ten grand. What does the agency do next?

How Does Subrogation Work?

This is where subrogation comes in. It is the way that an insurance company uses to claim reimbursement when it pays out a claim that turned out not to be its responsibility. Some insurance firms have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Under ordinary circumstances, only you can sue for damages done to your person or property. But under subrogation law, your insurance company is considered to have some of your rights in exchange for having taken care of the damages. It can go after the money originally due to you, because it has covered the amount already.

Why Do I Need to Know This?

For starters, if your insurance policy stipulated a deductible, it wasn't just your insurance company that had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – to be precise, $1,000. If your insurer is unconcerned with pursuing subrogation even when it is entitled, it might choose to get back its expenses by upping your premiums. On the other hand, if it has a capable legal team and pursues those cases aggressively, it is doing you a favor as well as itself. If all is recovered, you will get your full deductible back. If it recovers half (for instance, in a case where you are found 50 percent culpable), you'll typically get half your deductible back, based on the laws in most states.

Furthermore, if the total cost of an accident is more than your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as auto accident attorney Essex MD, successfully press a subrogation case, it will recover your losses as well as its own.

All insurance companies are not the same. When comparing, it's worth contrasting the records of competing companies to evaluate whether they pursue legitimate subrogation claims; if they do so with some expediency; if they keep their customers posted as the case continues; and if they then process successfully won reimbursements right away so that you can get your losses back and move on with your life. If, on the other hand, an insurer has a reputation of paying out claims that aren't its responsibility and then protecting its bottom line by raising your premiums, even attractive rates won't outweigh the eventual headache.