What is "subrogation" in insurance?

Subrogation in insurance refers to the process through which an insurance company seeks reimbursement from a third party that is responsible for causing a loss. When an insured party suffers a loss and files a claim, the insurer pays the insured to cover the damages. If it is determined that another party is at fault for that loss, the insurer has the right to pursue recovery of the amount it paid out from that party.

This process allows the insurer to recoup costs and helps to keep insurance premiums in check since the insurer can offset its losses. Subrogation is crucial because it prevents the insured from receiving a double recovery; that is, getting compensation from both the insurer and the party responsible for the loss. This practice also upholds the principle of liability, ensuring that the party at fault is held financially accountable for their actions.

Understanding subrogation is key for anyone in the insurance industry, as it impacts both how claims are handled and how costs are managed within the overall insurance system.