Subrogation is a concept that's understood among insurance and legal companies but often not by the policyholders they represent. If this term has come up when dealing with your insurance agent or a legal proceeding, it would be in your self-interest to understand the nuances of the process. The more knowledgeable you are, the better decisions you can make about your insurance company.
Every insurance policy you hold is a commitment that, if something bad happens to you, the insurer of the policy will make restitutions in a timely fashion. If a hailstorm damages your house, your property insurance steps in to repay you or enable the repairs, subject to state property damage laws.
But since figuring out who is financially responsible for services or repairs is typically a confusing affair a€" and delay often adds to the damage to the victim a€" insurance firms usually decide to pay up front and figure out the blame afterward. They then need a path to regain the costs if, in the end, they weren't actually in charge of the payout.
Let's Look at an Example
Your electric outlet catches fire and causes $10,000 in house damages. Fortunately, you have property insurance and it pays out your claim in full. However, the assessor assigned to your case discovers that an electrician had installed some faulty wiring, and there is a reasonable possibility that a judge would find him to blame for the damages. You already have your money, but your insurance firm is out $10,000. What does the firm do next?
How Subrogation Works
This is where subrogation comes in. It is the process that an insurance company uses to claim payment after it has paid for something that should have been paid by some other entity. Some insurance firms have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Under ordinary circumstances, only you can sue for damages to your self or property. But under subrogation law, your insurer is considered to have 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 Policyholders?
For one thing, if you have a deductible, it wasn't just your insurer that had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too a€" to the tune of $1,000. If your insurer is lax about bringing subrogation cases to court, it might choose to recoup its expenses by boosting your premiums. On the other hand, if it has a competent legal team and goes after those cases aggressively, it is doing you a favor as well as itself. If all ten grand 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 to blame), you'll typically get half your deductible back, based on the laws in most states.
In addition, if the total price of an accident is more than your maximum coverage amount, you may have had to pay the difference, which can be extremely expensive. If your insurance company or its property damage lawyers, such as worker compensation terms Alpharetta GA, pursue subrogation and succeeds, it will recover your costs in addition to its own.
All insurers are not created equal. When shopping around, it's worth examining the reputations of competing agencies to evaluate if they pursue legitimate subrogation claims; if they do so quickly; if they keep their clients informed as the case goes on; and if they then process successfully won reimbursements immediately so that you can get your deductible back and move on with your life. If, on the other hand, an insurance firm has a record of paying out claims that aren't its responsibility and then protecting its bottom line by raising your premiums, even attractive rates won't outweigh the eventual headache.