Subrogation is an idea that's well-known in legal and insurance circles but sometimes not by the policyholders who employ them. Even if you've never heard the word before, it is in your self-interest to know the nuances of how it works. The more knowledgeable you are, the better decisions you can make with regard to your insurance company.

Every insurance policy you hold is an assurance that, if something bad happens to you, the business that covers the policy will make restitutions in a timely fashion. If your vehicle is rear-ended, insurance adjusters (and the courts, when necessary) decide who was at fault and that person's insurance covers the damages.

But since determining who is financially accountable for services or repairs is typically a time-consuming affair – and time spent waiting sometimes increases the damage to the victim – insurance companies often decide to pay up front and assign blame afterward. They then need a way to get back the costs if, ultimately, they weren't in charge of the expense.

Let's Look at an Example

You are in a traffic-light accident. Another car crashed into yours. Police are called, you exchange insurance information, and you go on your way. You have comprehensive insurance and file a repair claim. Later it's determined that the other driver was entirely at fault and her insurance should have paid for the repair of your vehicle. How does your company get its funds back?

How Subrogation Works

This is where subrogation comes in. It is the way that an insurance company uses to claim payment when it pays out a claim that turned out not to be its responsibility. Some companies 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 person or property. But under subrogation law, your insurance company is considered to have some of your rights in exchange 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 Me?

For one thing, 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 be precise, $1,000. If your insurance company is timid on any subrogation case it might not win, it might opt to get back its losses by upping your premiums and call it a day. On the other hand, if it knows which cases it is owed and pursues those cases efficiently, it is acting both in its own interests and in yours. If all is recovered, you will get your full thousand-dollar deductible back. If it recovers half (for instance, in a case where you are found one-half responsible), you'll typically get half your deductible back, depending on the laws in your state.

Moreover, 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 attorneys fishers in, successfully press a subrogation case, it will recover your losses as well as its own.

All insurance companies are not created equal. When shopping around, it's worth weighing the records of competing firms to determine whether they pursue winnable subrogation claims; if they resolve those claims without dragging their feet; if they keep their customers informed as the case proceeds; and if they then process successfully won reimbursements immediately so that you can get your funding back and move on with your life. If, on the other hand, an insurance firm has a record of honoring claims that aren't its responsibility and then protecting its income by raising your premiums, you'll feel the sting later.

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