The world of car insurance is filled with terms and phrases used to describe specific situations, and not all of them are particularly well-known. One term that you may not have heard before, or just recently heard for the first time, is subrogation.
But what is subrogation, and what does it mean for you as an insured driver? If you’ve heard the term applied recently to an accident or incident you were involved in, you’re probably wondering exactly what it means to you. In this article we’ll explore everything you need to know about including:
- Subrogation basics
- Is subrogation a good thing?
- Why does subrogation happen:
- How subrogation works for insured people
- What is a waiver of subrogation?
- What’s the impact of subrogation?
- Fault and subrogation
- How long does subrogation take?
We hope this will be an informative piece that will take away the mystery about this sometimes misunderstood aspect of insurance. To get started, let’s explore the basics of exactly what subrogation means.
Basics of Subrogation
In the insurance world, subrogation means that an insurance carrier has a right to legally obtain payment from a 3rd party that is responsible for insurance costs to an insured person. In basic terms, it means that if you’re in an accident that someone else caused, and the accident results in covered costs, your insurance company is legally allowed to pursue financial recoupment from the other driver and their insurance company.
Usually, this applies when your insurer pays directly for repairs or medical costs after an accident before they’ve received payment from the other party’s insurer. Subrogation allows them to seek reimbursement from the other driver’s insurance company.
Is it only relevant in auto insurance? Not necessarily— it also appears sometimes in healthcare policy claims, with similar parameters.
Is Subrogation a Good Thing?
While subrogation may sound like a ‘scary insurance term,’ it’s actually a very good thing for insured drivers who are victims in an accident where they are not at fault. Because your insurer has subrogation rights, they can directly pay for your repairs or medical costs promptly— instead of having to wait until they can get payment from the other insurance company.
After they’ve already paid for your costs from the insurance claim, they can then go through the process of subrogation in order to recoup their costs. In these cases, your insurance company is essentially acting as a legal stand-in for you, taking on the same rights and legal standing that you have when seeking compensation for losses after an accident. Whatever rights you would have to be compensated, your insurance company can pursue those same rights on your behalf.
In some cases, a successful subrogation can occasionally mean that you receive all or part of your deductible back. It depends on how much compensation your insurer is able to obtain from the relevant 3rd party.
When Does This Happen?
The most common situation where subrogation occurs is when you’re in an accident and you’re determined to not be at-fault. The insurance of the driver who is at fault is then required to pay for repair costs or medical bills that arise as a result of the accident. If those funds aren’t paid quickly, or are delayed for any reason, your insurance company will often simply pay those funds directly so that you’re not left waiting without a functioning vehicle or with medical procedures that you can’t afford to have completed.
Subrogation is the legal process through which your insurance company can, after paying for those costs themselves, get those costs reimbursed after the fact by the at-fault driver’s insurance company.
The final result of successful subrogation is that your insurer will be refunded the amount of any costs they’ve paid out for the claim.
How Subrogation Works for Insured People
If you’re in an accident that is entirely the other driver’s fault, then subrogation is good news for you.
Usually, it means that you won’t even hear about the subrogation and it won’t affect your claims process at all. That’s because subrogation is mainly handled behind-the-scenes by the two involved insurance carriers. From your perspective, you simply file the claim, receive payment for the claim, and complete any repairs or pay for any medical expenses resulting from the incident.
The other hidden benefit of subrogation is that it helps keep your insurance rates relatively low. If subrogation weren’t an option, it would mean that your insurance company would have to take on all the costs of paying out a claim. This would increase their overall operating costs, which they would in turn have to respond to by raising their insurance rates across the board. This would be bad news for policyholders like you.
What is a Waiver of Subrogation?
In some cases, your insurance policy contract may include what’s known as a waiver of subrogation. This is a special contractual provision which means that the insured person (you) is waiving the right of their insurance carrier to seek compensation for losses resulting from a 3rd party. These waivers usually mean an associated fee for the insured person, because it increases the financial exposure of the insurer.
So why would someone want a waiver of subrogation in their policy? In auto insurance, they’re relatively uncommon. But it can provide additional protection for insured people in some specific industries, minimizing lawsuits that could arise as a result of an incident that causes financial loss.
As we mentioned above, subrogation is a good thing for insured people who may be the victims of an accident. Your best bet is to keep subrogation on the table for your insurer.
Subrogation Example
To better understand how the subrogation process works, let’s look at an example of it in action.
Let’s say that you’re driving along, obeying all traffic laws, and a driver in another vehicle makes a mistake that causes you to have a car accident. Your vehicle is totaled as a result, which means it’s written off as a total loss rather than being deemed repairable.
Your insurance carrier pays you the amount of the value of your vehicle so that you can purchase a new one, as outlined in your policy. Then, your insurer pursues legal action against the driver who caused the accident or, more accurately, their insurance company. If they’re successful, your insurance company receives a payout from the other party’s insurance company, and the matter is settled.
What Happens When Both Drivers are at Fault?
So far, we’ve discussed subrogation in the event that the other driver is clearly at fault. But what if fault isn’t clearly one-sided? In some states, each party can be considered partially at-fault for an accident. In this case, each individual’s insurer is responsible for a percentage of the claim costs.
Subrogation still applies in these cases, but it means that your insurer may recover all or just some of the accident costs, and you may get all or some of your deductible back— or none of it at all. The potential amount you could get back in the end depends largely on your state’s individual laws.
How Long Does Subrogation Take?
On average, subrogation takes around six months. This can differ depending on the insurance carrier, state, and the circumstances of the individual incident.
But don’t worry— this doesn’t mean you’ll have to wait six months to get your vehicle repaired. The beauty of subrogation is that it allows your insurer to pay you directly as soon as the claim is processed.
Conclusion
At Freedom National, our mission isn’t just to provide cheap car insurance online for people all over the country. We want to help you become a more informed, safe, and confident driver, and that begins with knowing the secrets to vehicle safety, important insurance facts, and how to navigate the rules and regulations of your state or area.
If you want to learn more, explore our knowledge base for a range of articles to help you expand your car insurance expertise.
If you’re ready to receive a free online quote from Freedom National for vehicle and get coverage in minutes, get started now. Freedom National is one of the most trusted providers of cheap car insurance online in the nation, automatically comparing rates from several major and minor insurers to find you the best possible rate and coverage. We even help people get insured who may have negative events on their driving record, from DUIs to required SR-22s.
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