If you have any type of insurance policy, whether it’s business insurance, homeowner’s insurance or automobile insurance, you have probably come across the word “subrogation” somewhere in your policy terms. However, if you’re like many people, you are probably not entirely sure what it means.
According to Webster, “to subrogate” means “to put in place of another,” or to substitute. In legal terms, subrogation gives another party (typically an insurer or government agency) the right to take the place of another in regard to a legal claim.
Subrogation comes into play when a person sustains damages caused by someone else and is paid by a third party (known as a collateral source) for his damages. For example, if you are in an automobile accident that is another driver’s fault, you have the right to take legal action against the responsible party to be reimbursed for any property damage or injuries you sustain. However, if you submit a claim to your insurance company for those damages and the insurer pays, the insurer then gets to subrogate any legal claims. In other words, it gets to step into your shoes and sue the responsible party to get its money back.
Alternatively, consider the case of an employee who is injured in a job-related accident for which a third party is at fault – for example, an accident at a construction site that results from a subcontractor’s negligence. The injured employee receives workers’ compensation benefits paid by his employer’s insurance. If the injured worker later sues the subcontractor and wins, the amount he has received from worker’s compensation must be reimbursed.
Many government benefits programs also contain a subrogation clause. Let’s say, for instance, that you are injured in a car accident and Medicare pays your $40,000 hospital bill. Later, you sue the party responsible for the accident and obtain a $100,000 judgement, which includes compensation for your medical care. Under the terms of the subrogation clause, you would be required to reimburse Medicare for its $40,000 loss.
What Is the Purpose of Subrogation?
Subrogation serves a dual purpose. On one hand, it allows injured parties to quickly collect payments for damages from their insurers. At the same time, it allows insurers to recoup some of their losses, thus keeping the cost of insurance down.
Additionally, subrogation prevents injured parties from “double-dipping,” or being paid twice for damages by collecting from their insurance companies and then suing the responsible party in court.
Generally, subrogation clauses require injured parties to cooperate with an insurer who is pursuing subrogation. This means, among other things, that you are prohibited from signing any waiver or agreement that absolves a third party or his insurer of any financial responsibility. If you do, your insurer may be within its rights to refuse to pay the claim.
Like many insurance concepts, subrogation can be a complex issue, and state laws vary as to how subrogation clauses may be enforced. If you are unsure about a subrogation clause in your policy or have other insurance-related questions you would like to discuss, please don’t hesitate to give us a call. We are available Monday through Friday 9 a.m. until 6 p.m. at 516-292-3780, or you can request a free consultation online now.