Subrogation Station

Subrogation is defined as a legal right that allows one party (e.g., your insurance company) to make a payment that is actually owed by another party (e.g., the other driver's insurance company) and then collect the money from the party that owes the debt after the fact. -Wikipedia

Photo by: Boston Public Library

The insurance world might define it a little more carefully though. Subrogation refers to the process an insurance company uses to seek reimbursement from the responsible party for a claim it has already paid.

Subrogation matters to you the insured if you have a covered loss, and you submit a claim to your insurance company, but another party was actually responsible for all or part of the damages (i.e., you have a car accident and the other driver caused the accident, or your home burns down because the HVAC system was defective).

When this happens, your insurance company may pay your claim, but then seek reimbursement from the other party. And therein lies the rub. Some insured folks simply don't understand the process, or it's purpose, nor the definition of indemnity. They are under the misguided impression that not only can they collect a check from their insurance carrier for their loss, but they can also sue the person responsible for the loss, and basically recover twice as much as they have lost.

A dictionary will define indemnity as nothing more than protection or security against damage or loss, but an insurance company will define it a little differently. The insurance company will say it something like this: To indemnify a policyholder is to restore the policyholder to pre-loss condition; to make whole, no better, no worse.

To be made whole, no better, no worse precludes profiting from a loss. You see, you can't collect a check from your insurance company that makes you whole, puts you back to your pre-loss condition, and then sue the other party that caused the loss, as that would make you better off than you were before the loss.

In reality, as unfair as it might seem to you, it is actually the right way for the process to work. When you sign most any policy, you are agreeing to the subrogation process. You are agreeing to allow the insurance company to make you whole, then for the insurance company to attempt to recapture the money they paid to you for your loss, as you were not at fault, and they were not the insurance company for the "other guy" (although that does happen from time to time, and is a much simpler process when it does since they won't sue themselves).

The up side to the insured is that you are always made whole by your insurance company (you might argue the details of being made whole, but you will be paid for a covered loss). In the absence of subrogation, you might find your insurance company telling you that it was the other guys fault, and that it is their job to make you whole. If that were the case, and you had to sue, you could be in for a lengthy legal process, with absolutely no guarantee that you would win, or be made whole. You might even find yourself even worse off.

One of the greatest features of nearly all insurance policies is that all legal expenses fall to your insurance company, and ALL the work too. You simply do not have to be a major part of the process, and if you have to testify, they even reimburse you for your time. Sometimes I think we overlook that feature, or at the very least, take it for granted.

If all of this information is new to you, it might be time to allow someone else to take a look at your personal and/or business insurance. I would be grateful if you would allow me that opportunity. Call, text, or fax me at 615-751-0274, I would love to evaluate your current policy, and see if we can save you some money, or at least make certain your coverage is appropriate, and make certain you understand your coverage.