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What Is Subrogation: Definition & Advantages

Subrogation

Subrogation is a legal right that allows an insurer to recover damages paid out on a claim from the third-party responsible for the damage. It is a common law doctrine that applies when an insurer has paid out damages for a claim covered by its policy and the insurer has the right to recover those damages from the third-party responsible for the claim.

Types of Subrogation:

  • Implied subrogation: Arises automatically when an insurer pays out damages for a claim covered by its policy.
  • Express subrogation: Occurs when an insurer expressly agrees to subrogate for a third-party insurer.

Process of Subrogation:

  1. Notice of Subrogation: The insurer sends a notice to the third-party responsible for the damage, informing them that it has subrogated its rights to recover damages.
  2. Investigation and Recovery: The insurer investigates the claim and gathers evidence to support its subrogation rights. It then pursues legal action against the third-party to recover damages.
  3. Recovery of Damages: If the insurer prevails in its lawsuit, it can recover the damages paid out on the claim from the third-party.

Examples:

  • An insurer pays out damages for a car accident caused by a third-party. The insurer can subrogate its rights against the third-party to recover damages.
  • An insurer has an agreement with a third-party insurer to subrogate for claims covered by both policies. If an insured person makes a claim that is covered by both policies, the insurer can subrogate against the third-party insurer.

Key Considerations:

  • Subrogation rights are limited to claims covered by the insurer’s policy.
  • The insurer must have paid out damages before it has the right to subrogate.
  • Subrogation rights are generally transferable to the insured.
  • The insurer has the right to recover its costs of investigation and litigation.

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