Subrogation is an idea that's well-known among insurance and legal firms but sometimes not by the people they represent. If this term has come up when dealing with your insurance agent or a legal proceeding, it is in your benefit to understand an overview of the process. The more you know, the better decisions you can make about your insurance company.

An insurance policy you own is a promise that, if something bad occurs, the business on the other end of the policy will make restitutions in one way or another without unreasonable delay. If your house suffers fire damage, for instance, your property insurance agrees to pay you or facilitate the repairs, subject to state property damage laws.

But since figuring out who is financially accountable for services or repairs is regularly a heavily involved affair – and time spent waiting in some cases adds to the damage to the policyholder – insurance companies in many cases decide to pay up front and assign blame afterward. They then need a path to recover the costs if, ultimately, they weren't actually in charge of the payout.

Can You Give an Example?

Your electric outlet catches fire and causes $10,000 in home damages. Happily, you have property insurance and it pays for the repairs. However, in its investigation it discovers that an electrician had installed some faulty wiring, and there is a decent chance that a judge would find him liable for the damages. The house has already been repaired in the name of expediency, but your insurance agency is out $10,000. What does the agency do next?

How Does Subrogation Work?

This is where subrogation comes in. It is the way 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 considered to have some of your rights in exchange for having taken care of the damages. It can go after the money originally due to you, because it has covered the amount already.

How Does This Affect Policyholders?

For starters, if your insurance policy stipulated a deductible, it wasn't just your insurer who had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – to be precise, $1,000. If your insurance company is timid on any subrogation case it might not win, it might choose to recoup its costs by increasing your premiums and call it a day. On the other hand, if it knows which cases it is owed and goes after them aggressively, it is acting both in its own interests and in yours. If all $10,000 is recovered, you will get your full deductible back. If it recovers half (for instance, in a case where you are found one-half accountable), you'll typically get $500 back, depending on the laws in your state.

Furthermore, if the total price of an accident is over your maximum coverage amount, you may have had to pay the difference. If your insurance company or its property damage lawyers, such as attorneys that specialize in auto accidents Norcross GA, successfully press a subrogation case, it will recover your costs as well as its own.

All insurers are not created equal. When comparing, it's worth examining the reputations of competing companies to determine whether they pursue winnable subrogation claims; if they resolve those claims with some expediency; if they keep their customers apprised as the case continues; and if they then process successfully won reimbursements immediately so that you can get your funding back and move on with your life. If, instead, an insurer has a reputation of paying out claims that aren't its responsibility and then safeguarding its profit margin by raising your premiums, you'll feel the sting later.