An example of subrogation is when a car insurance company pays out a claim to a policyholder before fault is determined and then attempts to recover their costs from the other driver. Subrogation is the legal process by which insurers receive compensation from an at-fault party. Subrogation also happens with business/general-liability insurance.
Simple Example of Subrogation in Car Insurance
Driver A hits Driver B, who did nothing wrong. Driver B files a claim with her own collision insurance, pays her deductible, and receives a check for the covered amount. Since Driver A was at fault, Driver B’s insurer begins subrogation with Driver A’s insurer in order to recover money equivalent to the amount of the claim and deductible.
In this scenario, fault might take weeks or months to determine, depending on whether Driver A admits wrongdoing. However, Driver B benefits from subrogation because she can receive a claim payout immediately, without waiting for Driver A’s insurance company to pay for the damage once fault is eventually decided.
Examples of Situations Where Subrogation Might Happen
At-Fault Driver Is Uninsured
If you are in an accident and the other driver is at fault but not insured, you may be able to cover your expenses using your own collision or uninsured motorist insurance. Your insurance company may subsequently sue the uninsured driver directly for reimbursement of the claim costs and your deductible. Since they’re suing an individual, not negotiating with an insurance company, this can be a longer process that’s less likely to recover funds.
Both Drivers Are At Fault
An example of an accident where both drivers are at fault would be if you accelerated into an intersection and the light turned red before you cleared it, and, at the same time, another driver ran a red light and hit you, causing $10,000 worth of damage. While both drivers’ insurance companies investigate the accident, you can file a claim with your collision insurance for the $10,000 of damage and pay a $1,000 deductible.
If the investigation determines that the other driver is 60% at fault and you are only 40% at fault, you and your insurer may be able to recover part of your $10,000 collision claim costs, depending on the laws of your state. Generally, because you were found to be 40% at fault, you can only recoup 60% of the costs you and your insurance company paid for the claim. That means your insurance company will try to recover $6,000 of the original claim, and you’d receive $600 of your original $1,000 deductible.
If another driver is at fault in an accident that causes $10,000 worth of damage, and your insurance company can only recover 50 percent of the loss ($5,000), this is considered a partial recovery. The partially recovered funds will be divided between you and your insurance company to reflect the percentages of money paid to repair your car.
If you paid only 10% of the total claim, or your $1,000 deductible, and your insurance company paid 90%, or the remaining $9,000 of the total claim, any recovered funds will be divided based on the ratio of your payment versus your insurance company’s payment. With a partial recovery of $5,000, you’d receive $500, while your insurance company would receive $4,500.
For more information, check out WalletHub’s guide to subrogation.
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