What is subrogation?
Subrogation is a legal right for an insurance carrier to recover damages or collect a debt from a responsible third party. It is the process of seeking reimbursement for the costs of the claim paid by the insurance carrier to the insured.
Subrogation can occur in multiple claim types, including property, workers compensation, or liquor liability. If there is a responsible party attached to a claim, the insurance carrier holds the right to subrogation. Some examples include:
- A vehicle hits a building. The responsible driver’s auto carrier will be presented with a demand for reimbursement of the damages paid, plus the insured’s deductible.
- A patron at a restaurant suffers a broken tooth due to an olive pit that should not have been in the salad. The food manufacturer will be presented with a demand for reimbursement of the damages paid to the claimant.
- An employee suffers a work-related injury due to a defective product they were using. A product liability claim can be pursued against the manufacturer.
Why is it important?
Subrogation is important for several reasons. If the insurance carrier is successful in recouping damages or debts from a responsible third party, the policyholder can be reimbursed for either a full or partial amount of their deductible. This is dependent on the state and the amount recovered from the responsible party. Sometimes, the cost of the claim is more than the responsible party’s policy limits. Therefore, only damages up to the policy limits can be recovered.
Subrogation can also help improve a policyholder’s loss ratio if successful. The loss ratio is the relationship between the total amount of claims for a policyholder, the costs of the loss for each claim, and the amount of earned premium. If an insurance carrier is reimbursed for the loss, this improves the loss ratio.
How does it work?
Typically, the policyholder’s insurance carrier first pays the policyholder for the loss. Then, the insurance carrier seeks reimbursement from an individual or business who is responsible for the loss or their insurance carrier.
When subrogation occurs, the insurance carrier acts on behalf of the policyholder to seek reimbursement. In some cases, the insurer seeks reimbursement in the form of a lawsuit. Different states have different statutes of limitations for pursuing subrogation this way.
How can policyholders assist?
Policyholders can rely on ICC to go through the subrogation process on their behalf. Generally, the more quickly a recovery opportunity is identified, the greater the chance for a successful outcome. Knowing how the process works can help protect policyholders in case of an incident. There are a few things that a policyholder can do at the outset of the claims process that can help increase the likelihood of a successful subrogation claim:
- Preserve the scene and other evidence until it can be inspected.
- Take pictures or videos if possible. This includes photos of the damage as well as photos of the completed work at the end of the claim. If you have surveillance cameras onsite, share them with your agent and/or insurance company.
- Provide ICC with all documents requested during the claims process. This helps speed up your payment for the loss, as well as provide proof to the responsible party for the loss claimed.
- Obtain police reports. Even when a responsible party is unknown at the time of the loss, this can help your insurance carrier work with the police department to see if a responsible party becomes known throughout the investigation.
Contact your ICC agent for more information about the subrogation process. If you aren’t an ICC policyholder, visit our website to Find an Agent in your area.
