Subrogation (Insurance) - Explained
What is Subrogation of Rights?
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Table of ContentsWhat is a Subrogation of Rights?How does Subrogation Work? The Subrogation Process for the InsuredWaiver of SubrogationAcademic Research on Subrogation
What is a Subrogation of Rights?
Subrogation is a legal right held by insurance companies that enables them to make claims against a third party that has caused an insurance loss to an insured. When an insurance company pays for damages and loss that an insured incurred from an incident caused by a throid party, the insurance company can proceed to file a legal claim against the third party so as to recover that amount they have paid as claim. Under subrogation, an insurance company pursuing a third party for damages caused has the same legal rights as the insured that sought compensation for losses from the company. Hence, the amount paid to the insured is recovered through claims laid on the third party. held by an insurance
Here are some key things you should know about subrogation;
- Subrogation is a legal right held by insurance companies that allows them to legally pursue a third party that has caused damage to an insured.
- Most insurance companies file claims against a third party after they might have settled the claims of the insured.
- Insurers have the same legal rights as an insured when making claims against a third party in subrogation.
- Through subrogation, insurance companies seek reimbursement for claims paid to the insured.
- Health care insurance policies, auto-insurance policies, property or casualty policies are areas where subrogation is mostly used.
Back To: INSURANCE & RISK MANAGEMENT
How does Subrogation Work?
In a literal sense, subrogation occurs when an individual or a group is substituted for another with regard to settlement of insurance claims. In the legal sense, subrogation is the right held by an insurance company that enables them to pursue a third party offender who has caused damages or losses to an insured. After an insurer has paid claims for damages and losses, he can seek repayment from the third party who is the actual cause of the damages. Most times, the insurance company seeks reimbursement after the claims have been paid to the insured. An insurer with subrogation rights has the legal rights to file a claim against a third party and also receive due compensation. Subrogation occurs in many insurance policies such as health insurance policy, auto insurance policy, and others. If a car that has an auto insurance policy is involved in an accident causing serious damages to it, the owner of the insured car has the rights to collect claims from the insurer to compensate for the damaged car. If however, the accident is caused by a third party, the insurer, after paying claims to the owner of the car pursues the third party legally. Claims are made against the third party in order to recover all expenses and claims paid to the owner of the car. Also, if an insured is involved in an accident that causes health problems which cost a lot of money, the insurer has the legal rights to make claims against the third party that caused the accident and recover all the medical bills spent on the insured.
The Subrogation Process for the Insured
Policyholders have no direct roles to play during a subrogation process. Rather, all the procedures and processes are undertaken by the insurance companies for both parties. An individuals insurance company pays its clients claim for losses directly before pursuing legal claims against the third party. Despite that policyholders might play no direct roles in a subrogation process, they are required to keep in touch with the insurance company that is pursuing claims against a third party, especially in an accident case. An insured has a duty to report the accident to the insurer without leaving any detail, this will help the insurance company in seeking reimbursement, settlement or taking legal action.
Waiver of Subrogation
A Waiver of subrogation refers to an agreement in which an insured prohibits the insurance company from seeking subrogation against a third party. In this situation, an insurance carrier relinquishes its right to seek compensation for losses from a negligent third party. When an insured gives this endorsement that prohibits subrogation, insurance companies charge an additional fee. If a subrogation is waived, an insurance company cannot make claims against a negligent third party or seek reimbursement for claims paid to the insured. This special policy endorsement is often used in construction contracts where the insured is the owner client.
- What are the primary obligations of the insurer?
- Earned Premium
- Reservation of Rights Letter
- Collateral Source Rule
Academic Research on Subrogation