Subrogation is a term that's understood among legal and insurance companies but sometimes not by the customers they represent. Even if it sounds complicated, it is in your benefit to know the nuances of how it works. The more you know, the better decisions you can make with regard to your insurance policy.

Every insurance policy you hold is an assurance that, if something bad happens to you, the firm that covers the policy will make good in one way or another in a timely manner. If you get an injury on the job, for example, your employer's workers compensation insurance agrees to pay for medical services. Employment lawyers handle the details; you just get fixed up.

But since ascertaining who is financially responsible for services or repairs is sometimes a heavily involved affair – and time spent waiting in some cases increases the damage to the victim – insurance companies usually decide to pay up front and assign blame afterward. They then need a mechanism to recover the costs if, once the situation is fully assessed, they weren't actually responsible for the expense.

Let's Look at an Example

Your stove catches fire and causes $10,000 in house damages. Happily, you have property insurance and it takes care of the repair expenses. However, in its investigation it discovers that an electrician had installed some faulty wiring, and there is a reasonable possibility that a judge would find him accountable for the loss. You already have your money, but your insurance firm is out all that money. What does the firm do next?

How Subrogation Works

This is where subrogation comes in. It is the method that an insurance company uses to claim payment 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 done to your person or property. But under subrogation law, your insurance company is given some of your rights in exchange for having taken care of the damages. It can go after the money that was originally due to you, because it has covered the amount already.

Why Does This Matter to Me?

For one thing, if your insurance policy stipulated a deductible, it wasn't just your insurance company who had to pay. In a $10,000 accident with a $1,000 deductible, you lost some money too – to be precise, $1,000. If your insurer is unconcerned with pursuing subrogation even when it is entitled, it might choose to get back its costs by boosting your premiums and call it a day. On the other hand, if it knows which cases it is owed and goes after them enthusiastically, it is doing you a favor as well as itself. If all $10,000 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 accountable), you'll typically get $500 back, based on the laws in most states.

In addition, if the total cost of an accident is over your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as personal injury claims Toronto, successfully press a subrogation case, it will recover your expenses in addition to its own.

All insurers are not the same. When shopping around, it's worth looking up the records of competing companies to determine whether they pursue winnable subrogation claims; if they resolve those claims without delay; if they keep their customers informed as the case continues; and if they then process successfully won reimbursements quickly so that you can get your funding back and move on with your life. If, on the other hand, an insurance firm has a record of honoring claims that aren't its responsibility and then safeguarding its income by raising your premiums, even attractive rates won't outweigh the eventual headache.