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Subrogation is a term that's unfamiliar to most people who are not part of the insurance industry. However, if you have a claim with your car insurance company, understanding what subrogation is and how insurance companies use it to recover some of their costs is important.

When it comes to fully understanding car insurance, “subrogation” is a must-know term.

What Is Subrogation?

Subrogation is defined as a legal right that allows one party (e.g., your insurance company) to make a payment that is actually owed by another party (e.g., the other driver’s insurance company) and then collect the money from the party that owes the debt after the fact.

Subrogation is one of the ways that car insurance companies recover money that was paid out in claims to drivers insured by them.

How Subrogation Works

Subrogation is generally the last part of the insurance claims process. In most cases, the insured person hears little about it. It's something that happens between insurance companies.

If an insurance company does decide to pursue subrogation, however, the law requires that they inform you that they are doing it. This is important to you, the customer and injured party, for two main reasons:

  • If the insurance company decides to pursue subrogation to recover costs, they must try to recover the cost of your deductible as part of the process, and refund it to you if they do recover it.
  • Generally, your insurance policy will require you to cooperate with any attempts by the insurer to pursue subrogation.
    • Among other things, this means you may not be allowed to sign any waivers or agreements that release the other driver from responsibility if he is judged to be at fault in the accident.

If your insurance company does not pursue subrogation, you can still attempt to recover your deductible from the other driver or his insurer, but it's far easier to let the insurance company recover it for you.

When Is Subrogation Used?

When you file a claim with the insurance company and another driver or party is at fault, the insurance company will generally:

  1. Pay the claim in order to indemnify you (cover your damages and injuries).
  2. Seek to recover the money they paid - or at least a part of it - from the parties that are at fault in the accident.

Essentially, because fault typically is not determined immediately (but rather through an investigation process), the final decision on who pays usually has to wait until the investigation is complete. However, a driver who files his claim may not be able to wait for the payout, so the insurance company pays while determining fault and then seeks to recover those costs later.

Partial Fault and Subrogation

If the insurance company's investigation finds that you're partially at fault in the accident, the amount of the deductible you can recover will be prorated to the percentage of your fault.

Example: If the judgment is that you were 40% at fault, for example, and your insurer chooses to subrogate your claim, you'll be entitled to 60% refund of your deductible.

Waiving Subrogation

If you sign any settlement with the other driver's insurance company, be careful to read the fine print.

Some insurers attempt to insert a "waiver of subrogation" clause to prevent your insurance company from attempting to get reimbursement for money that it has paid out to you.

If you waive subrogation after an accident, your auto insurance company may refuse to pay your claim because they will not be able to seek reimbursement from the other driver's insurance company.

If you have any questions about subrogation as it relates to your policy, speak with your auto insurance agent.

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