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Subrogation in Insurance: Meaning, Example & How it Works

Team AckoFeb 17, 2024

Subrogation is a term that refers to “substitution”. This term can be really helpful if you face a situation where a third-party damages your car but does not accept the mistake. In this scenario, your insurer will be your substitute to recoup the claim amount from the faulty individual. Read the article to know more about subrogation in insurance and its functionality.




What Does Subrogation Mean in Insurance?

Definition of Subrogation can be understood as a fair practice of replacing the policyholder’s place with the insurer. In short, by subrogation, you will offer all the legal rights to your insurer to claim money from a third-party, if he/she is found to be guilty of an accident. Subrogation comes under the indemnity clause. Indemnity clause is a contract between a policyholder and an insurer which shows the respective procedures and obligation to compensate the claim amount against damage or losses to your vehicle.

How Subrogation in Insurance works? 

Subrogation is a common process in the insurance sector involving three parties; the insurance company, policyholder, and a third-party responsible for the damages. The process starts when the policyholder claims for the damage cost incurred in an accident that happened due to third-party. After settling the claim with the insured, the insurance company may initiate the process of retrieving the claim amount. Before starting the recovering process, the insurer asks for the legal rights to sue the faulty individual. The insured offers all the legal rights to the insurer to pursue the third-party on behalf of him/her.

Please keep in mind that some insurance companies include deductible amounts in the process of subrogation. In that case, the insured will be entitled to the claim amount plus deductibles once the responsible third-party compensate the damage cost to the insurer. 

The subrogation process is not hidden. Being a policyholder, you can keep a record by going through the policy wordings to check on the legal procedures to recover the claim amount from the other party who caused the damages to the insured vehicle. 

Example of Subrogation:

One fine day, your car got damaged after a reckless driver bumped into your car. Now, the third-party who hit your car is not ready to accept his/her fault. You have no time to argue so you left the place with your damaged car. 

This is exactly the point where the process of subrogation starts. You claim for your insured vehicle’s damage cost and at the same time, you transfer the legal right to recover the compensation amount from the third-party who caused the damage. After settling your claim, your insurer will hold him/her liable for the damage and recover the damage cost.

Types of Subrogation

Generally, there are three types of subrogation in Insurance:

  • Equitable Subrogation

Equitable subrogation is one of the most common elements in insurance policies where an insurance company recovers the claim amount from the third-party who caused the damage to the insured vehicle. Most of the cases involve other parties; however, some exceptions exist such as damage due to flood or earthquake. In those cases subrogation cannot be conducted.

  • Contractual Subrogation

A Contractual subrogation is also known as Conventional subrogation, where an insurer gets to stand in the insured's shoes to sue third-party, after the insured has forfeited his authority to the insurer. Sometimes insured may not want to continue with subrogation for peace of mind, at that time as per contractual subrogation, an insurer can file a lawsuit against the third-party for the loss repaid.

  •  Statutory Subrogation

Unlike the other two subrogations, a statutory subrogation does not involve an insurance company to cover the losses to the insured vehicle caused by third-party. In this case, both insured and the other party make a pact of compensating the loss amount among themselves without involving the insurance company. This procedure is more straightforward than the other two subrogations.

Principle of Subrogation In Insurance

Here are some basic rules and regulations followed for the subrogation process:

  • The entire process of subrogation should be transparent between a policyholder and his/her insurer. Such rights are generally mentioned in the policy wordings.

  • The insurer cannot proceed with the subrogation without the consent of the policyholder. 

  • The insurer cannot subrogate until the insured has been fully indemnified. However, some insurance companies permit the insurer to commence subrogation in the policyholder's name, even if the negotiation over the compensation has not been finalised.

  • The insurer can charge a legal offence against the faulty third-party who is found to be guilty of damaging the insured vehicle.

Waiver of Subrogation in Insurance

When you go through your insurance policy wording, you may have come across the term “waiver of subrogation” which means renouncing the rights of subrogation. Generally, the insurance companies waive off its right to recoup the compensation against third-party as the insured waived the right for recovery to maintain the peace between both the parties. The individual responsible for the damage to the insured vehicle would want you to waive off the rights of subrogation for his/her peace of mind. By doing that, eliminates the chances of potential conflicts between you and the liable third-party.

This is a provision for the policyholder, who can waive the right of his/her insurance company to obtain reimbursement from the negligent third-party. In that case, the premium can be a bit higher for this special policy agreement.

Things to Remember about Subrogation

Many policyholders may not be aware of this important clause while buying/renewing their motor insurance policies, later on, which can cause confusion and conflicts between the insured and third-party. Thus, it is very crucial to be acquainted with the subrogation clause and its functionality before buying insurance. Here is a list of things, you need to know about subrogation in insurance:

  • The insurer can access the subrogation right only after settling the claim amount with the policyholder.

  • Insured can waive off the right of subrogation, which may lead him/her to pay an additional fee which may vary from one insurance company to another.

  • Go through the subrogation clause in your policy wordings for better understanding.

Check out: Travel Insurance Online

Frequently Asked Questions

Below are the answers to some of the most commonly asked questions about subrogation meaning in insurance:

What is subrogation in car insurance?


Subrogation is right transferred to the insurer from the insured to recover the damage compensation caused by the third-party to the insured vehicle.

What is the purpose behind the act of subrogation?


The purpose is to recover the money for damages due to other party’s fault. In such cases, the third-party's insurance/third-party himself should be paying the claim amount for the losses and not the other way around.

What is subrogation in the health insurance sector?


The meaning of subrogation in the health insurance sector refers to the legal right of the health insurance companies to reimburse from third-party for what they have paid for your medical care. In this case, a third-party must be liable for your medical condition.

Why is subrogation important for an insured and an insurance company?


Subrogation allows an insurer to recoup the repair cost from the third-party’s end, who is liable for the damage to the insured vehicle. In this way, you and your insurer can get a refund from third-party/third-party’s insurer.

What if I damage someone’s car and ignore the subrogation process?


If you are liable for the damage caused to someone else’s car, they have the right to proceed through subrogation. If you ignore it, the insurance company has the legal right to sue you in this process. So it is advisable not to neglect subrogation in order to avoid conflicts.

Also, read; Indemnity Health Insurance Plan


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