Subrogation is a term that's well-known among legal and insurance firms but rarely by the people who employ them. Even if you've never heard the word before, it is in your self-interest to comprehend the steps of how it works. The more you know, the better decisions you can make with regard to your insurance policy.

An insurance policy you hold is an assurance that, if something bad occurs, the company on the other end of the policy will make good in a timely manner. If your vehicle is hit, insurance adjusters (and police, when necessary) decide who was at fault and that person's insurance pays out.

But since ascertaining who is financially responsible for services or repairs is usually a tedious, lengthy affair – and time spent waiting sometimes adds to the damage to the policyholder – insurance firms in many cases decide to pay up front and figure out the blame afterward. They then need a way to recover the costs if, ultimately, they weren't actually responsible for the payout.

Can You Give an Example?

Your living room catches fire and causes $10,000 in house damages. Happily, you have property insurance and it takes care of the repair expenses. However, the insurance investigator finds out that an electrician had installed some faulty wiring, and there is reason to believe 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 reimbursement when it pays out a claim that turned out not to be its responsibility. 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. Normally, only you can sue for damages to your person or property. But under subrogation law, your insurer is extended 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 the Insured?

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 have a stake in the outcome as well – to the tune of $1,000. If your insurer is unconcerned with pursuing subrogation even when it is entitled, it might choose to recoup its expenses by ballooning your premiums. On the other hand, if it has a proficient legal team and pursues them efficiently, it is acting both in its own interests and in yours. If all of the money is recovered, you will get your full thousand-dollar deductible back. If it recovers half (for instance, in a case where you are found 50 percent culpable), you'll typically get $500 back, based on the laws in most states.

Moreover, if the total loss of an accident is more than your maximum coverage amount, you may have had to pay the difference, which can be extremely costly. If your insurance company or its property damage lawyers, such as probate attorney whitewater wi, pursue subrogation and wins, it will recover your costs as well as its own.

All insurance companies are not created equal. When shopping around, it's worth weighing the reputations of competing companies to evaluate if they pursue winnable subrogation claims; if they resolve those claims without dragging their feet; if they keep their clients informed as the case proceeds; and if they then process successfully won reimbursements quickly so that you can get your losses back and move on with your life. If, instead, an insurance agency has a record of paying out claims that aren't its responsibility and then covering its bottom line by raising your premiums, even attractive rates won't outweigh the eventual headache.

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