Subrogation and How It Affects Policyholders

Subrogation is a term that's well-known in legal and insurance circles but often not by the policyholders who hire them. Rather than leave it to the professionals, it is in your benefit to know the nuances of how it works. The more you know about it, the better decisions you can make with regard to your insurance policy.

Every insurance policy you hold is a promise that, if something bad occurs, the insurer of the policy will make restitutions in a timely manner. If your property suffers fire damage, for instance, your property insurance steps in to compensate you or facilitate the repairs, subject to state property damage laws.

But since ascertaining who is financially accountable for services or repairs is sometimes a confusing affair – and time spent waiting in some cases compounds the damage to the victim – insurance firms often opt to pay up front and assign blame after the fact. They then need a path to get back the costs if, in the end, they weren't actually in charge of the expense.

Can You Give an Example?

You go to the emergency room with a gouged finger. You give the receptionist your health insurance card and she takes down your plan details. You get stitched up and your insurer gets a bill for the tab. But on the following day, when you clock in at your place of employment – where the injury occurred – your boss hands you workers compensation forms to turn in. Your company's workers comp policy is in fact responsible for the invoice, not your health insurance company. The latter has a right to recover its money somehow.

How Subrogation Works

This is where subrogation comes in. It is the method 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. Usually, only you can sue for damages done to your person or property. But under subrogation law, your insurer is given some of your rights in exchange for making good on the damages. It can go after the money that was originally due to you, because it has covered the amount already.

How Does This Affect Individuals?

For starters, if your insurance policy stipulated a deductible, it wasn't just your insurer that had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – to the tune of $1,000. If your insurer is unconcerned with pursuing subrogation even when it is entitled, it might choose to recoup its costs by ballooning your premiums. On the other hand, if it knows which cases it is owed and pursues them aggressively, it is doing you a favor as well as itself. If all is recovered, you will get your full $1,000 deductible back. If it recovers half (for instance, in a case where you are found 50 percent accountable), you'll typically get half your deductible back, based on the laws in most states.

In addition, if the total expense of an accident is more than your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as wills and estate planning Racine WI, pursue subrogation and wins, it will recover your losses as well as its own.

All insurance companies are not the same. When shopping around, it's worth measuring the records of competing companies to evaluate whether they pursue legitimate subrogation claims; if they do so without dragging their feet; if they keep their accountholders advised as the case goes on; and if they then process successfully won reimbursements immediately so that you can get your money back and move on with your life. If, instead, an insurance firm has a record of paying out claims that aren't its responsibility and then protecting its profitability by raising your premiums, even attractive rates won't outweigh the eventual headache.