What Is Car Insurance Subrogation?
Car insurance subrogation lets insurance companies recoup the cost of claims from the at-fault party. It can affect your deductible and auto insurance premiums.
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When filing a car insurance claim, you may come across the term “insurance subrogation.” It’s a legal process that allows an insurance company to request reimbursement from the at-fault driver's insurer for the money it’s paid for your claim.
Depending on which side of the claim you’re on, it can seem unfair and confusing. If you didn’t cause the car accident, you could directly benefit from subrogation — the funds may help cover your deductible payment, minimizing your out-of-pocket costs.1 If you did cause the accident, it can feel like one more headache in a stressful situation.
No matter where you are in an accident’s fallout, here’s what you need to know about insurance subrogation.
What is auto insurance subrogation?
Auto insurance subrogation is a legal term that plays a significant role in insurance claims, particularly after car accidents. When you hear the word “subrogation,” think of it as a mechanism that allows an insurance company to recoup the money it paid to policyholders for damages or losses.
Subrogation can be helpful if you’re not responsible for the accident because your insurance company may reimburse you for the deductible if it recovers the money successfully from the other party's insurer. This way, you don’t have to carry the financial burden of someone else’s actions.
It’s important to note that subrogation can apply to other insurance claims besides auto, too. You might see it in homeowners, healthcare, or commercial insurance when insurers pay bills and claims.
Types of subrogation
Three types of subrogation allow insurers to recover funds from a responsible party. The difference is how you get the right to subrogation.
Legal (or equitable) subrogation: Legal principles form the basis of this type of subrogation, although contract agreements between parties can modify or eliminate it.2
Conventional subrogation: An agreement, such as a written contract, establishes conventional subrogation. It can independently grant the right to subrogation or modify existing legal rights.
Statutory subrogation: Laws and legislation govern statutory subrogation. It lets people seek compensation from a third party, even if there isn’t a contractual relationship between them.
How subrogation works
Understanding how subrogation works in car insurance claims is essential for drivers seeking fairness and accountability in the aftermath of an accident. Subrogation is usually a three-party process between the insurance company, the insured party (the policyholder), and the party responsible for damages.
The car insurance company starts the subrogation process when paying out damages for a policyholder after an accident. After that, the insurer can pursue reimbursement from the at-fault party’s insurance company.
Once it subrogates the claim, the insurance company investigates the auto accident. If the policyholder didn’t cause the accident, it’s a straightforward process. However, determining the proportion of fault can be complex if both parties share some responsibility. In this case, the amount recovered through subrogation may vary based on each party’s degree of fault.
The outcome can vary. If the at-fault driver’s insurance company agrees with the investigation results, the policyholder may get their deductible back, and the insurance company recovers the funds they paid out. However, if the at-fault party’s insurance company denies responsibility, the subrogation process may involve legal action to resolve the dispute.
How long subrogation takes
Subrogation can be a complex and time-consuming process. Several factors determine how long it takes. These factors include the accident’s circumstances, the claim’s complexity, and the state’s laws.
In an ideal scenario, subrogation can be relatively quick if both insurance companies agree on liability. In these cases, the insurer can wrap up the process in about 30 days. But more complex situations can span several months or even years.3
Examples of subrogation in action
The best way to understand car insurance subrogation is through an example. Below are two different situations in which subrogation could take place.
First, you’ll see what would happen if the other driver is entirely at fault. Then, you’ll see how it would work if you (as the policyholder) are partially to blame.
The other driver is at fault
Suppose you’re driving and another driver runs a red light, colliding with your vehicle. The accident investigation clearly shows the other driver is solely responsible for causing the collision. Assuming you have full-coverage car insurance, your insurance company would pay for damages to your vehicle and any injuries you may have suffered.
After paying your claim, your insurer would ask the other driver’s insurance company to reimburse the cost. The other party’s insurance company would cover the expenses since they are the only ones at fault.
You contributed to the accident
If you rear-end another vehicle, and the investigation reveals the other driver had broken brake lights, then they are partially responsible. Again, assume you have full coverage and your insurance company covers the repair and injury costs after the accident.
Because you share some responsibility for the accident, your insurance company could recover part of the cost of the claim but not all of it. In this case, both drivers are partially to blame, and both insurance companies agree to cover some of the damages.
Subrogation pros and cons
Insurance companies can use subrogation to recover funds paid in a claim to reduce the financial burden and offer policyholders more stable premiums. But you can also reap the rewards. Your insurance company must include the deductible you paid when subrogating a claim. If the request goes through, the insurer returns your deductible to you.
Pros of car insurance subrogation
Reduces costs: The insurer can recoup some or all of the claim amount, lowering overall costs and helping control insurance policy premiums for everyone.
Limits unfair claims: An at-fault party’s insurer reviews a claim during the subrogation process, protecting against false or exaggerated claims.
Claim resolution: Subrogation can spare the insured person from lawsuits by resolving the claim without going to court, minimizing time, stress, and costs.
Cons of car insurance subrogation
Delayed result: A subrogation claim can be time-consuming and intricate, especially when coordinating efforts between insurers, lawyers, and third parties.
Legal complications: Legal disputes, lack of evidence, or the insolvency of the responsible party can make it difficult to recover the total claim amount.
Repayment obligation: You may need to repay your insurance company if you pursue a claim against the at-fault party and receive a judgment award.
Insurance subrogation FAQs
Subrogation can raise questions for insurers and insured parties when dealing with insurance claims. Below are answers to some frequently asked questions.
What is a waiver of subrogation?
Waivers of subrogation are agreements by insurers not to pursue subrogation claims. It’s often a result of the insured (you, as the policyholder) giving up their right to reimbursement from a third party after loss or damage. However, waiving this right can affect coverage, so talk to your insurance company before taking action.4
What does it mean if subrogation is pending?
A pending subrogation means that the insurance company has requested reimbursement but hasn’t yet received it. In some cases, parties can wrap up the process in 30 days. But it may take weeks, months, or even years for the at-fault party or their insurance company to agree and submit reimbursement.
What is the “Made Whole” doctrine?
The “Made Whole” doctrine means that the insured (policyholder) should be fully reimbursed for damages before the insurer can recover funds from the responsible third party. The laws vary by state, but it prioritizes the insured’s interests. If funds are limited, the “Made Whole” doctrine can reimburse the insured party before the insurance company receives funds.5
What do at fault and no fault mean in car insurance?
In car insurance, “at fault” refers to the party responsible for causing an accident. The at-fault party’s insurance is typically responsible for covering the damages. “No-fault” insurance is a system where each party’s insurance covers its own damages regardless of who caused the accident.
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