Subrogation

Subrogation refers to substitution of one person into another’s place in regards to a legal right, demand, or other lawful claim. The individual who takes another’s place by subrogation incurs the rights of the original party in the matter. Subrogation is most commonly seen in insurance claims, where an insurance company, having made payment to its insured, steps into the insured’s shoes and in pursuit of payment from a third party. To explore this concept, consider the following subrogation definition.

Definition of Subrogation

Verb

1. To substitute one person for another, with reference to a legal claim or right.

Origin

1400-1450       Late Middle English

What is Subrogation

The purpose of subrogation, or of one party stepping into another’s place in a legal or financial obligation, is to ensure that the obligation or debt is ultimately paid by the party who should, by all that is fair, pay it. Conventional subrogation is a right granted when one party pays or satisfies a debt or obligation of another, as a result of a contractual agreement between the two. This is commonly seen when an insurance company pays for damages to a client’s car, which was caused by the negligence of another driver. The insurance company, having made its client whole, then has the right to pursue the negligent driver to seek repayment. In such a case, the client subrogates to the insurance company his position and right to seek damages from the other driver.

Insurance Subrogation

During the insurance process, the final step is generally subrogation, and in most cases, the insured hears almost nothing about it. While insurance subrogation may occur between an insurance company and an individual deemed at fault for the loss, it most often occurs between insurance companies for all of the parties involved. When an insurance company decides to pursue subrogation, it is required by law to notify the insured client before proceeding. There are two important reasons for a client to be notified of insurance subrogation activities:

1. The insurance company is required by law to attempt to recover their client’s deductible amount as part of its subrogation process. If recovered, this amount must be refunded to the client.
2. The insured client is required to cooperate with the insurance company’s subrogation attempts. This may bar him from signing any agreements to release the other party from legal or financial responsibility, without first obtaining permission from the insurance company.

In some circumstances, pursuit of subrogation is simply not worth the insurance company’s time or expense. If the insurance company opts to not seek payment from the other party, the insured client has the right to attempt to recover his deductible amount from the other party, or the party’s insurance company, on his own.

When a Subrogation Claim May be Submitted

The concept of subrogation claims makes the process of obtaining payment under an insurance policy go smoothly. In most cases, an individual’s insurance company pays its client’s claim for losses directly, then seeks reimbursement from the other party, or his insurance company. The insured client receives payment promptly, which is what he pays his insurance company to do, then the insurance company may pursue a subrogation claim against he party at fault for the loss. A subrogation claim may be submitted if the insured client has a loss that is covered by his insurance policy, and another party is responsible or liable for the damages.

A subrogation claim may also apply when the insured client is at fault for the damages.

For example:

Tom and John, who are backing out of their respective parking spots at the mall simultaneously, collide in the middle of the row. Both men have insurance to cover the loss, and both make claims on their policies. In such a case, it is likely that both drivers will be deemed at least partially at fault. Both insurance companies may make subrogation claims against one another, with each company ultimately paying their respective client’s portion of the other party’s claim.

Waiver of Subrogation

A waiver of subrogation is an agreement by an insured person to leave his insurance company out of the claim. This comes into play when an individual who caused damages wants to settle the matter directly with the other party’s insurance company. Most settlement agreements in such cases include a waiver of subrogation clause which, once signed, prevents the individual’s insurance company from stepping in to handle the issue if something goes wrong. Most insurance companies require their clients to notify them before signing a waiver of subrogation.

Subrogation Investigations Benefit All

In many cases, widespread problems of health or safety might never come to public light if it weren’t for subrogation investigations. For example, in 2000, an insurance investigator at State Farm Insurance investigated multiple reports of Firestone tires on Ford vehicles suffering catastrophic failure, causing property damage, injuries, and even deaths. The investigator became concerned, and reported the events to the National Highway Transportation Safety Administration (NHTSA). The NHTSA then contacted both Firestone and Ford about the large number of failures in certain cases.

Ford’s subsequent investigation into the problem discovered a high failure rate of several 15-in Firestone tire models, most of which were manufactured in Firestone’s Decatur, Illinois plant. This action led to a recall of certain Firestone tire models on certain Ford vehicles, but more importantly, the investigation ended in the closure of Firestone’s Decatur plant. All of this occurred as a result of an insurance subrogation investigation in which the State Farm investigator noticed a pattern of losses, but the entire public community benefitted from the action taken.

Related Legal Terms and Issues

• Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
• Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
• Liable – Responsible by law; to be held legally answerable for an act or omission.
• Negligence – Failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances.