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Subrogation is the substitution of an individual or group of individuals for another in a legal situation. In the field of insurance, subrogation happens when your insurance company stands in for you and exercises your legal right to pursue an individual or an organization for an insurance claim. Subrogation begins with the concerned insurer paying the damages related to an insurance claim. You may file an insurance claim and receive the payment. Next, the insurer chooses to chase the party that sought the damages. In an effort to recover the sum that it paid you, it sues the third party – effectually representing your interests in a court.

Basically, subrogation is a technique employed by insurance companies to retrieve the money paid out for insurance claims. Three parties are involved: the policyholder, the insurer, and the party responsible for the damages. The insurance policy includes a section on subrogation that elucidates your insurance provider’s legal privileges to use this technique in certain situations.

Following a road accident, an insurance provider can use subrogation to follow the driver of the vehicle found to be liable for recovering the losses. Let us suppose a car jumps a red light and hits a landscaper’s company-owned pickup truck. The landscaper then documents a claim on their commercial auto insurance, and their insurance provider sends them a cheque to cover the costs. After the claim is established, the landscaper’s insurance provider uses subrogation to seek compensation from the car owner by going to court on behalf of the landscaper.

Workers’ reparation insurance is another area wherein an insurance corporation could use subrogation to reclaim the money compensated through an insurance claim. If a third party’s neglect causes an injury to a worker, the incapacitated worker is entitled to seek damages.

It sounds complex but insurance providers do engage in subrogation as it provides them a better chance of getting their money back. Because they’re more likely to recover the cost of a claim, insurance companies that employ this technique can often lower their insurance premiums. That means subrogation can end up profiting both an insurance provider, who gets back their money from a claim, and a policyholder who may pay a lower premium as a result.

However, it’s not always advantageous for a policyholder. If your insurance company has paid your claim amount, and you have obtained money from the party that caused the damage, you may have to compensate your insurance company with the sum that it paid you.

Subrogation is a pain for those on the receiving end of a subrogation letter. In the first example, the driver of the car shall receive a letter from the landscaper’s insurance company requesting the amount it took to repair the truck. If the car driver has sufficient liability coverage, it will cover the cost of the claim. However, if the car driver does not have the same, or if the sum exceeds that covered by their policy, they may have to pay from their own pocket.

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