Subrogation is a term that's well-known in legal and insurance circles but rarely by the people who employ them. Even if you've never heard the word before, it would be to your advantage to understand an overview of the process. The more knowledgeable you are about it, the more likely relevant proceedings will work out favorably.

An insurance policy you own is a promise that, if something bad occurs, the insurer of the policy will make restitutions in one way or another in a timely manner. If your vehicle is rear-ended, insurance adjusters (and police, when necessary) decide who was to blame and that person's insurance pays out.

But since determining who is financially accountable for services or repairs is regularly a confusing affair – and time spent waiting in some cases compounds the damage to the victim – insurance firms in many cases decide to pay up front and assign blame later. They then need a method to recoup the costs if, when all is said and done, they weren't responsible for the expense.

Can You Give an Example?

Your bedroom catches fire and causes $10,000 in house damages. Happily, you have property insurance and it pays out your claim in full. However, in its investigation it finds out that an electrician had installed some faulty wiring, and there is reason to believe that a judge would find him liable for the damages. The house has already been repaired in the name of expediency, but your insurance company is out $10,000. What does the company do next?

How Subrogation Works

This is where subrogation comes in. It is the process that an insurance company uses to claim reimbursement 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. Usually, only you can sue for damages done to your person or property. But under subrogation law, your insurer is given some of your rights for making good on the damages. It can go after the money that was originally due to you, because it has covered the amount already.

How Does This Affect Policyholders?

For a start, if you have a deductible, your insurer wasn't the only one that had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – namely, $1,000. If your insurer is lax about bringing subrogation cases to court, it might choose to recover its expenses by boosting your premiums. On the other hand, if it has a knowledgeable legal team and pursues those cases efficiently, it is acting both in its own interests and in yours. If all of the money is recovered, you will get your full deductible back. If it recovers half (for instance, in a case where you are found one-half accountable), you'll typically get half your deductible back, depending on your state laws.

Furthermore, if the total loss 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 real estate lawyer Lake Geneva, WI, pursue subrogation and succeeds, it will recover your losses in addition to its own.

All insurers are not the same. When comparing, it's worth scrutinizing the reputations of competing agencies to determine whether they pursue legitimate subrogation claims; if they resolve those claims without dragging their feet; if they keep their policyholders apprised as the case continues; and if they then process successfully won reimbursements immediately so that you can get your money back and move on with your life. If, instead, an insurer has a reputation of paying out claims that aren't its responsibility and then covering its bottom line by raising your premiums, you'll feel the sting later.