Subrogation

The insurer right, after paying a claim, to step into the insured shoes and recover from the party at fault.

Overview

If an insurer pays a fire claim caused by a neighbor faulty wiring, it can sue the neighbor and keep recoveries up to the amount paid, with any excess above the loss belonging to the insured. Made whole doctrines in many states limit recovery until the insured is fully compensated. Waivers of subrogation, common in construction and lease contracts, give up the right by agreement, and insurers price accordingly. The doctrine underlies intercompany arbitration for auto claims and the recoveries that pull down loss costs industry wide. Insureds must not impair the right, such as settling alone with the responsible party and leaving the carrier unpaid, or coverage can be jeopardized.