Subrogation
The legal right of an insurer to pursue the party responsible for a loss after paying a claim to the policyholder.
What is Subrogation?
Subrogation is the legal process by which an insurance company, after paying a claim to its policyholder, steps into the policyholder's shoes and pursues recovery from the third party legally responsible for the loss. Subrogation prevents double recovery — the policyholder cannot collect both from their insurer and from the at-fault party for the same loss. It also helps contain insurance premiums by allowing insurers to recoup paid claims. Policyholders generally have a contractual duty to cooperate with the insurer's subrogation efforts and must not sign releases or settlements with third parties that would impair the insurer's right to recover. Waiver of subrogation endorsements, common in construction contracts, contractually eliminate this right.
Example
A driver runs a red light and hits a parked car. The parked car's insurer pays the owner $18,000 to repair the vehicle, then exercises its subrogation rights against the at-fault driver's liability insurer to recover the $18,000. The at-fault driver's insurer pays the subrogation claim, and the parked car's insurer is made whole — without the car owner having to file or pursue their own claim.
Source: National Association of Insurance Commissioners — Auto Insurance