"The Subrogation Definition" may sound like the title of an episode of "The Big Bang Theory," but it's a term that gives many insurers great relief.
Here's a definition of subrogation, from West's Encyclopedia of American Law:
The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he or she who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.
Let's try it again, in plainer English: Subrogation is a legal right an entity has to assume the rights of another -- very often in an insurance setting. The folks at Nolo.com offer a more detailed insurance-oriented definition:
Subrogation is a legal procedure that lets an insurance company make a claim against a third party, to recover benefits that the insurer paid to its insured. The purpose of subrogation is to force the person or company that was at fault for an accident to reimburse the insurance companies that paid insurance benefits as a result of that accident.
Subrogation often involves one insurer going after another. Source: Dino Kužnik, Wikimedia Commons.
Subrogation at work
Some more fleshed-out examples will likely help, here. For starters, imagine you're in a car accident with another vehicle, and you're not at fault. If the other party's insurer is slow or reluctant to pay for your car's repairs, your own insurer might do so (typically while requiring you to pay your deductible). So far, so good. You're back on the road again. But your insurer has made payments it doesn't think it should have, so subrogation enters the picture. (Note that most often, subrogation happens behind the scenes, as far as we insurance buyers are concerned. It's typically engaged in by insurance companies.) Your insurer will now use subrogation to get reimbursed by the other insurer for what it paid out on your behalf.
Here are a few other examples of subrogation:
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Your home suffers fire damage due to a defective lamp. Your home insurance policy pays and covers your losses, but then it may well go after the lamp manufacturer to recoup what it paid you.
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You suffer an injury at work and your health insurance pays up. It might then pursue your employer or your employer's workers' compensation provider for reimbursement.
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In some cases, especially in the past, a landlord's insurance company might be able to go after a negligent tenant responsible for some damage or expense the insurer had to cover.
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If you get a mortgage through Bank A, then Bank B buys the mortgage from Bank A, it assumes various rights of Bank A, including the expectation that you will continue paying off your loan.
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When you guarantee a loan for someone, such as your child, if the borrower defaults, the lender will consider you responsible. Subrogation is in effect there, too.
Subrogation also enters the picture in legal proceedings and contracts, but it's likely to affect the average person most through insurance.
Why subrogation matters
Subrogation might seem entirely irrelevant to you and only of interest to insurance enthusiasts, but that's not really true. When an insurer goes after another insurer, it not only aims to recoup what it paid for you, but also the deducible you paid. If it's partially successful, you'll receive a partial refund. If it's entirely successful, you'll get back all you paid out.
And finally, subrogation benefits you in another key way -- because if insurers weren't able to recoup some sums they pay out for you and other policy holders, then the overall rates they charge for premiums would rise. Subrogation can keep the cost of insurance down.
