What is Subrogation?
When you are dealing with an auto insurance company, nearly every coverage contract will contain the term subrogation. It can be daunting to come across unfamiliar words when you are faced with stacks of official insurance documents. However, you never want to come across a situation where you are asked to sign a significant document like a waiver of subrogation without knowing what that means. It is a term that is essential to know if you want to fully understand how auto insurance works. In short, subrogation is a procedure commonly used by insurance companies that allows the substitution of one person or group for another in a legal setting.
What is Subrogation?
Auto insurance is a complicated subject with a lot of legal language, but there is a simple way to define subrogation. Although it sounds serious, subrogation is simply a tactic used by insurance companies to protect their clients and themselves from paying for an accident that was not their fault. An insurance subrogation, in legal terms, is when one party (the insurance company) assumes the legal rights of another party (the insured client) in order to recover funds by collecting debt or damages. It can collect money from the at-fault party or its insurer and recover money that has already been paid, including your deductible. Giving an insurance company the right of subrogation allows it to potentially save money, and some of those savings are extended to customers.
Why does subrogation happen?
The most common event that leads to a subrogation claim is when you get into a car accident while carrying a first party car insurance. Subrogation allows your insurance company to step in on your behalf and handle all of the dealings with the other driver and their insurer. Some types of first party insurance includes:
- Collision and comprehensive insurance.
- Personal injury protection and medical payments.
- Uninsured/Underinsured motorist insurance.
In most cases, the driver who was at fault would take care of repair costs and any medical bills through his or her insurance company. If the payment is delayed for any reason, your insurance company will usually cover the costs in the meantime. In order for your insurer to recoup its costs, including your deductible, it will use its right of subrogation on your behalf. This process helps you keep your insurance premiums low because when your insurance company saves money, many savings extend to you.
What to Expect from the Subrogation Process
Before your insurance company can file a subrogation claim, it must inform you. Fortunately, you won’t be asked to do too much during the process since you are giving your insurer the right to represent you. Your role will be more administrative during this process and both insurance companies will determine amongst themselves who pays for what. Many insurance contracts will not allow you to take an action that could harm your insurance company’s ability to recover funds. For example, you are prohibited from any agreements that might release the at-fault driver from liability for the accident.
Accidents with Uninsured Drivers
Although auto insurance is mandatory in the United States, you may have to deal with insurance subrogation if you are in an accident with an uninsured driver. In fact, one in every eight drivers in the U.S. is uninsured or underinsured. After your expenses are covered through your collision or uninsured motorist insurance, your insurance company can file a claim of subrogation so that it can sue that driver directly to recover some of its costs and reimburse your deductible. However, uninsured drivers are sued as individuals. As such, the legal process can take more time, and your insurance company is less likely to recover funds.
Accidents Where Both Drivers Are at Fault
In certain car accidents both drivers can share a percentage of the fault for a car accident. For instance, imagine that you are at an intersection and you see the light turn yellow. You accelerate, but you do not quite cross the entire intersection before the light turned red, and another driver runs a red light and strikes your car causing $10,000 in damage. You file an insurance claim and pay your $1,000 deductible to get your car repaired. An investigation then determines that you are only 30 percent at fault, while the other driver is 70 percent at fault.
After your insurance company files a subrogation claim on your behalf, it will most likely receive repayment for $7,000 or 70 percent of the damages. This would correspond to the 70 percent fault of the other driver. Since the deductible you paid is equal to 10 percent of the cost of the damages, you will receive 10 percent of the repayment. In this case, that would amount to $700. Although you would not be fully covered, a subrogation can help you recover some of the funds you spent trying to repair your car.
Partial Recovery from the Other Driver
For some cases, insurance companies may not be able to recover the total amount of the loss through insurance subrogation. Partial recoveries will be split between claimants and their insurance companies to reflect the percentages paid towards vehicle repairs. If you paid 10 percent of the repair costs through your deductible, you will generally receive 10 percent of the repayment. In an accident where you vehicle sustained $10,000 in damage and your insurer could only retrieve $5,000, you would be paid back proportionately. Your 10 percent repayment would come out to $500 after the subrogation.
Waiver of Subrogation
After some accidents, a driver who is at fault may try to propose a waiver of subrogation when he or she wants you to settle the situation without involving your insurance company. This waiver essentially prevents your insurance company from acting on your behalf to retrieve or request payments. Your insurance company will also be prevented from representing you legally. It is incredibly important to understand this type of document before you sign. In order to make the most informed decision about a waiver of subrogation, call your insurance provider and discuss the option with them. Most insurance companies ask that you call and notify them if you ever intend on signing a waiver like this.