The easiest way to understand subrogation in insurance is to think of it as an insurance company stepping into its policyholder’s shoes. This usually occurs during an insurance claim where you, the policyholder, aren’t at fault. Because your insurance company has the right to stand in your place, it can seek compensation from the party who’s actually responsible for your loss or from that party’s insurer.
Subrogation clauses are important components in insurance policies because they help insurance companies to deal with claims quickly. As a policyholder, subrogation can mean:
As a policyholder, you don’t have much to do when it comes to subrogation. Most of the action happens behind the scenes, particularly if you’re the one who experienced a loss caused by another insured party. Your insurance company typically pays your claim﹘assuming the situation merits coverage﹘and then works with the other party’s insurer to who is responsible for the damage and how much they owe.
For example, let’s say a limb falls from your neighbor’s dead tree and damages your roof, so you file a claim on your homeowners insurance. Your insurance company determines this is a compensable event and pays for your damage. However, your insurer also investigates the event only to discover that your neighbor had neglected that tree for years and ignored repeated requests to cut it down. Subrogation gives your insurer a chance to reclaim the money it’s paid you.
While these issues are typically handled seamlessly between insurance carriers, your insurance carrier may need to sue the other party if they deny fault. Without subrogation, your insurer wouldn’t be able to file that lawsuit. You should know, however, that whether or not there’s lawsuit you, the insured, are required to assist with your insurance company during the subrogation process. This may include:
A waiver of subrogation is an endorsement you can add to your policy that waives your insurance company’s right to stand in for you. It essentially stops subrogation from happening.
You may see waivers of subrogation in business insurance policies, but they are rare in home insurance. If you do run across one, you’ll likely be asked to pay an additional fee to add it to your coverage. This is because it limits the insurance company’s ability to be compensated for claims it shouldn’t have to pay.