How Subrogation Works

Whenever an insurance company pays out damages that a party other than their insured is responsible or partially responsible for causing, they may be entitled to collect the amount they paid from the at-fault party. This process is called subrogation. If you have received an insurance settlement or been found liable for another party’s damages, you may need to be familiar with the subrogation process.

The Insurance Company Will Settle The Claim

Before subrogation can be pursued, the insurance company must first pay the policyholder for the claim. Once they have paid the claim and determined another party is responsible for some or all of the damages they may pursue subrogation.


The Insurance Company Will Determine How Much the Third Party Owes

After paying out the claim, the insurance company will determine the amount they believe they are owed from the third party. This amount will depend upon the laws in the state where the damages occurred. For example, in a no-fault insurance state, the at-fault party may only be liable for the amount of the deductible.

In a comparative liability state, the insurance company may be entitled to collect the percentage of damages that corresponds to the amount of fault the third party is determined to have. For example, if your car was hit while parked, the other party would likely be 100% responsible. However, if you were involved in a crash in an intersection, both parties are likely to be found to be responsible for a portion of the damages. In a contributory liability state, if you are found to have contributed at all to your own damages, you and your insurance company may be barred from collecting from the other party, even if they are the majority at fault. 

Notification Will Be Mailed

The insurance company will send a subrogation letter to the party they hope to recover from. This letter will usually ask some questions about the claim. For example, if you were injured in a car accident and your health insurance paid for your injuries, they may send you a letter asking for information about the accident and your auto insurance policy to see if you have coverage that might be primary and to find out if there is an at-fault party they could pursue for recovery. 

The Insurance Company Will Attempt To Collect From the Third Party

Once they have allowed the third-party to respond to their letter, the insurance company will contact the party they are attempting to collect from and request payment for the amount of damages they believe the other party owes. If the other party agrees, they will make a payment arrangement and the process will end. However, if there is a dispute, a settlement will either be negotiated or your insurance company may file a lawsuit.

The subrogation process makes it possible for insurance companies to process their policy holder’s claims, regardless of fault, and then recover damages owed by other parties on behalf of their client. If you are the subject of a subrogation claim, you may need to contact your insurance company or attorney for assistance.

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