Subrogation
The legal right of an insurer to pursue a third party responsible for a loss after paying the policyholder's claim.
Subrogation is the process by which your insurance company, after paying your claim, steps into your shoes and pursues the party legally responsible for causing your loss to recover what it paid out. For example, if a drunk driver hits your car and your collision insurer pays to repair it, your insurer can then sue the at-fault driver (or their insurer) to recover the claim payment and your deductible.
Subrogation benefits policyholders in two ways: it allows them to be made whole quickly (by their own insurer) without waiting for a legal dispute with the at-fault party to resolve, and if subrogation succeeds, the policyholder may get their deductible refunded. Most policies include a subrogation clause that the insurer uses as the legal basis for these recovery actions.
Policyholders must cooperate with their insurer's subrogation efforts and cannot release the at-fault party from liability without the insurer's consent—doing so can void coverage. Never sign a broad release of liability without consulting your insurer or an attorney.
Real-World Example
After paying the homeowner $15,000 for water damage caused by a negligent plumber, the insurer pursued the plumber's liability policy through subrogation and recovered the full amount.