Subrogation is a term that's well-known in legal and insurance circles 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 would be to your advantage to understand the steps of how it works. The more you know about it, the better decisions you can make about your insurance policy.

Any insurance policy you have is an assurance that, if something bad happens to you, the firm on the other end of the policy will make restitutions without unreasonable delay. If your house burns down, your property insurance agrees to repay you or pay for the repairs, subject to state property damage laws.

But since figuring out who is financially accountable for services or repairs is sometimes a confusing affair – and delay in some cases compounds the damage to the policyholder – insurance companies often decide to pay up front and figure out the blame later. They then need a path to recoup the costs if, when all the facts are laid out, they weren't actually responsible for the payout.

For Example

Your electric outlet catches fire and causes $10,000 in house damages. Fortunately, you have property insurance and it pays out your claim in full. However, the assessor assigned to your case discovers that an electrician had installed some faulty wiring, and there is reason to believe that a judge would find him accountable for the loss. You already have your money, but your insurance firm is out $10,000. What does the firm do next?

How Does Subrogation Work?

This is where subrogation comes in. It is the process that an insurance company uses to claim payment when it pays out a claim that turned out not to be its responsibility. Some companies 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 done to your person or property. But under subrogation law, your insurer is considered to have 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 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 – namely, $1,000. If your insurance company is timid on any subrogation case it might not win, it might choose to recoup its costs by raising your premiums. On the other hand, if it has a capable legal team and goes after them efficiently, it is doing you a favor as well as itself. If all ten grand is recovered, you will get your full thousand-dollar deductible back. If it recovers half (for instance, in a case where you are found one-half responsible), you'll typically get half your deductible back, based on the laws in most states.

In addition, if the total loss 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 workplace injury lawyer Paddock Lake, WI, pursue subrogation and wins, it will recover your losses as well as its own.

All insurance agencies are not created equal. When shopping around, it's worth examining the records of competing companies to find out if they pursue valid subrogation claims; if they do so without dragging their feet; if they keep their accountholders apprised as the case goes on; and if they then process successfully won reimbursements right away so that you can get your deductible back and move on with your life. If, instead, an insurance company has a reputation of paying out claims that aren't its responsibility and then safeguarding its bottom line by raising your premiums, you'll feel the sting later.