What Is Subrogation in Auto Insurance?

Subrogation is a legal process that enables insurance companies to pursue third parties who are responsible for damages or injuries suffered by their policyholders, after the insurer has compensated the policyholder for their losses. After an insurance company covers the policyholder’s losses, they assume the policyholder’s rights to seek compensation from the liable third parties. This transfer of rights protects both the policyholder and the insurer, ensuring that losses are promptly resolved by the policyholder’s own insurance company.

Through subrogation, the insurer recovers the costs incurred, including the deductible paid by the policyholder during the claims process. In some cases, the insurer may issue a refund to the policyholder for the deductible once they have successfully subrogated the funds paid for repairs, replacements, and other damages.

For example, you were waiting at a traffic light and another car didn’t stop in time and rear-ended you. But the at-fault driver is unresponsive so you decide to claim on your own Collision coverage so that you can get your vehicle repaired in a timely manner. Your auto insurance company pays for your repairs and you pay the Collision deductible. Once your insurer compensates you for the losses, they have the legal right of subrogation.

In this case, your vehicle insurer will pursue subrogation against the at-fault driver. They will seek to recover the funds they paid out for the repairs and deductible. This process involves their legal team and negotiation with either at-fault driver or their insurance company.

If the subrogation process is successful, your insurer recovers the costs they paid on your behalf and may also recover your deductible. Once the funds are recovered, they may issue you a refund for all or part of the deductible amount. Overall, subrogation allows car insurance companies to seek reimbursement from responsible third parties, ensuring that policyholders and themselves are protected and losses are settled efficiently.

Policyholders typically have minimal involvement as the insurance company handles the necessary subrogation proceedings. However, policyholders are obligated to provide assistance to their insurers when required. It is essential to understand that the duration of the subrogation process can vary depending on factors such as the responsiveness of the third parties involved and the complexity of the case.

Interestingly, in some cases, insurance companies may find themselves in a situation where they need to subrogate against their own insured. For example, if the at-fault driver who caused the accident is insured by the same company as the policyholder, the insurer may need to shift funds from one account to another.

Vehicle insurance companies may gain the rights but they don’t have to go after the at-fault drivers. After careful consideration, they may decide that they will let it go. In many states, insurers are normally required to inform you that they will not start the subrogation process. In such cases, you may still be able to go after the at fault driver for the refund of your deductible. However, if you manage to get more than your deductibles from the at-fault party with your own efforts, you need to inform your insurer and may need to pay them the difference between what you received from the third-party and your deductible.

For example, in the above case, your insurer decided not to go after the at-fault driver. At a later date, the at fault driver decided to send you a check for your damages they caused. Unfortunately, you cannot keep the money if it is over your deductible and need to inform the payment to your insurer.

Automobile insurance policies typically include the transfer of rights after a claim is paid and this concept has wider implications. For example, your car is stolen and hasn’t been found within a reasonable time. Your insurer normally doesn’t wait too long for the stolen auto to turn up and settle the claim by paying the actual cash value of the stolen vehicle. Now, all your rights over such a vehicle are transferred to your insurer. So, if the vehicle is found a while later and returned to you by the police, you are legally obliged to inform your insurer and hand over the vehicle. Since your insurer paid you for the stolen car, they have the rights over it and can do whatever they want with it.

How Subrogation May Help Auto Insurance Policyholder

First of all, you may get your deductible back, if your insurer successfully recovers the money spent on your auto from third parties. Secondly, it keeps your auto insurance rates low. When your insurer fully recovers the losses, there is no reason for them to consider this incident that wasn’t your fault in their premium calculations. However, if they cannot recover the money, the incident is an unrecoverable expense for the company and this may play a small role in determining your premiums going forward, depending on the company.

Subrogation process helps the policyholder, insurer and the system by making everyone accountable and pay for damages they caused sooner or later.