Subrogation is a term that's understood in insurance and legal circles but sometimes not by the policyholders they represent. If this term has come up when dealing with your insurance agent or a legal proceeding, it would be in your benefit to comprehend the steps of how it works. The more you know about it, the better decisions you can make about your insurance policy.
An insurance policy you hold is a commitment that, if something bad occurs, the insurer of the policy will make restitutions without unreasonable delay. If your vehicle is in a fender-bender, insurance adjusters (and the judicial system, when necessary) determine who was to blame and that party's insurance covers the damages.
But since ascertaining who is financially accountable for services or repairs is typically a tedious, lengthy affair – and time spent waiting sometimes compounds the damage to the policyholder – insurance firms often decide to pay up front and assign blame afterward. They then need a mechanism to get back the costs if, ultimately, they weren't in charge of the payout.
For Example
Your garage catches fire and causes $10,000 in home 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 liable for the loss. You already have your money, but your insurance agency is out all that money. What does the agency do next?
How Subrogation Works
This is where subrogation comes in. It is the method 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. Ordinarily, only you can sue for damages done to your self or property. But under subrogation law, your insurance company is given some of your rights for making good on the damages. It can go after the money originally due to you, because it has covered the amount already.
How Does This Affect Policyholders?
For a start, if you have a deductible, it wasn't just your insurance company who had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – to the tune of $1,000. If your insurance company is lax about bringing subrogation cases to court, it might opt to recover its expenses by increasing your premiums and call it a day. On the other hand, if it knows which cases it is owed and pursues those cases enthusiastically, it is acting both in its own interests and in yours. If all $10,000 is recovered, you will get your full thousand-dollar 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.
Additionally, if the total cost 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 personal injury law firm Smyrna GA, pursue subrogation and wins, it will recover your expenses as well as its own.
All insurers are not created equal. When comparing, it's worth examining the records of competing firms to evaluate whether they pursue legitimate subrogation claims; if they do so without dragging their feet; if they keep their customers updated as the case continues; 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, on the other hand, an insurer has a record of paying out claims that aren't its responsibility and then safeguarding its income by raising your premiums, even attractive rates won't outweigh the eventual headache.