I’ve recently been asked by a couple of clients to explain the concept of subrogation and thought it would be worthwhile to use this forum to provide a brief explanation of what it is and how it works.

Dictionaries define subrogation as the substitution of one person or thing, for another; the right of a third party to assume the legal rights of another with reference to a lawful claim, demand or right. While subrogation is most used in the context of insurance, it has wide-ranging legal applications and significance.

Here’s how it works: Assume you’re involved in an auto accident that is not your fault. Your insurance carrier reimburses you for your damages and, pursuant to your policy, is thereby subrogated to your right (that is, assumes your right in place of you) to file a lawsuit against the other driver to collect the money that your insurer just paid you. Or someone starts a fire that causes heavy damage to your home. Your homeowner’s insurance carrier covers your loss and is thereby subrogated to your right, in place of you, to file a lawsuit against the party that caused the fire.

Every insurance policy will contain a subrogation clause, and while subrogation claims are usually handled simply and seamlessly, there is a trap for the unwary. In either of the scenarios described above, assume that the parties to the damage claim agree to settle the matter between themselves. The responsible party reimburses the aggrieved party for their out-of-pocket loss or deductible, and the aggrieved party files a claim with their insurance carrier for the bulk of the loss. By settling with the responsible party, the aggrieved party has potentially and unwittingly interfered with the insurance carrier’s right of subrogation and coverage could be denied.

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