Subrogation

Are you familiar with “subrogation”? It is a common insurance policy provision it is an important one! Your appreciation for insurance will increase if you learn about it!

An insurance policy, no matter what is being covered, is a contract between the insurance company and the person or organization that wants protection. When a policy involves liability coverage, the contract, essentially, means that the insurance company will handle losses (injuries to other people and/or loss or damage to property that belongs to others). However, eligible losses are restricted to those that are the policyholder’s legal responsibility. There are many times that a loss is settled under a liability policy; but someone else may actually be responsible. Consider an example:


Jon and Jenny are new to a neighborhood, so a few months after moving in, they throw a huge party and invite all of their neighbors. One of the activities is volleyball and they set up a net and space to play in their backyard.

The neighbors know each other well and they are quite competitive. During one game, an accident happens. Glen is injured while trying to block a ball at the net. The injury is very serious and Glen ends up paralyzed. He sues Jon and Jenny for his substantial medical costs and Jon and Jenny’s insurance company settles the loss.

Later, it is discovered that Paul, who was on the opposing volleyball team, had grabbed and pulled Glen when they were battling at the net, causing Glen to lose his balance and fall. Jon and Jenny’s insurance company learns of this and they sue Paul to recoup the money they paid for the loss.

The effort to recover payment made by Jon and Jenny’s insurance company illustrates “subrogation”. It is a legal right that allows the insurance company to take over a right held by their policyholder. Once an insurance company claims this right, it can pursue recovery from another person (including other entities such as partnerships or corporations) who is actually responsible for a loss.

Subrogation is an important process. When it is used, it helps to keep everyone’s insurance costs down and it also makes sure that liability insurance policies work as intended – by making sure that those parties who cause losses are held accountable.





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COPYRIGHT: Insurance Publishing Plus, Inc. 2011

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