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Subrogation is a term that's well-known in legal and insurance circles but often not by the policyholders who employ them. Even if it sounds complicated, it would be to your advantage to know an overview of how it works. The more knowledgeable you are about it, the better decisions you can make about your insurance policy.

An insurance policy you have is an assurance that, if something bad occurs, the insurer of the policy will make good in one way or another in a timely fashion. If your vehicle is rear-ended, insurance adjusters (and the judicial system, when necessary) decide who was to blame and that person's insurance pays out.

But since determining who is financially accountable for services or repairs is often a time-consuming affair – and time spent waiting in some cases adds to the damage to the policyholder – insurance companies in many cases opt to pay up front and figure out the blame later. They then need a means to regain the costs if, when all is said and done, they weren't responsible for the payout.

For Example

Your garage catches fire and causes $10,000 in home damages. Happily, you have property insurance and it pays out your claim in full. However, the insurance investigator discovers that an electrician had installed some faulty wiring, and there is a reasonable possibility that a judge would find him accountable for the loss. You already have your money, but your insurance agency is out $10,000. What does the agency do next?

How Subrogation Works

This is where subrogation comes in. It is the process that an insurance company uses to claim reimbursement when it pays out a claim that turned out not to be its responsibility. Some companies 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 insurer is given 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 you have a deductible, it wasn't just your insurer who 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 lax about bringing subrogation cases to court, it might opt to recover its expenses by upping your premiums. On the other hand, if it has a knowledgeable legal team and goes after those cases enthusiastically, it is acting both in its own interests and in yours. If all is recovered, you will get your full $1,000 deductible back. If it recovers half (for instance, in a case where you are found 50 percent to blame), you'll typically get half your deductible back, depending on your state laws.

In addition, if the total expense of an accident is over your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as workers comp lawyer Lake Geneva WI, pursue subrogation and wins, it will recover your losses in addition to its own.

All insurance companies are not created equal. When comparing, it's worth weighing the records of competing companies to determine whether they pursue winnable subrogation claims; if they resolve those claims with some expediency; if they keep their policyholders informed as the case proceeds; and if they then process successfully won reimbursements right away so that you can get your deductible back and move on with your life. If, instead, an insurer has a reputation of paying out claims that aren't its responsibility and then safeguarding its profit margin by raising your premiums, you'll feel the sting later.