What is subrogation? The official definition I found on Investopedia.com is as follows: “Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.”
That sounds super fancy, but what does this actually mean for you in your insurance life? What it means is, if you have to file a claim to cover damages caused that were not your fault, your insurance company has the right to then “step into your shoes” and seek compensation for the loss they had to pay. For example, what if someone comes into your home and accidentally uses dish soap in your dishwasher and causes tons of water damage to your property? You would file a claim and the company would decide if they were going to pay for the repairs minus your deductible. Let’s say they pay. Now they are out money for a claim their insured (you) did not even cause! They are going to want to try to recoup those losses if they can, so they will then subrogate against the other party’s insurance to get paid back for the claim.
In commercial insurance, policy holders have the choice to waive subrogation for certain other individuals if it is in writing prior to any loss having taken place. This is called either a Waiver of Subrogation Endorsement or Waiver of Transfer of Rights of Recovery Endorsement. For example, an owner/client may require this endorsement from their vendors in order to avoid being held liable for accidents that occur on their jobsite in which the vendor or subcontractor would need to file a claim on their own insurance.
It seems very confusing, but it really isn’t if you just break it down! Subrogation allows your insurance company to recover their losses when you are not at fault (or if you are only partially at fault and they paid 100% of the loss).
If you have any questions, please feel free to reach out to our agency.