What is a waiver of subrogation?

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.... read full answer

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.

Partial Recovery

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.

You would want a waiver of subrogation if you were the at-fault party in a serious and expensive accident, especially if you are uninsured. A waiver of subrogation allows the at-fault driver to pay a small settlement for the damage they caused and prevents the injured party’s insurer from suing for the full ... read full answerclaim amount. While this is good for the at-fault driver, this ultimately prevents the injured driver from being able to recover any future costs that may arise from the accident.

Waivers of Subrogation for Injured Drivers

As the injured driver after an accident, signing a waiver of subrogation is usually not a good idea. In fact, your insurance policy may even forbid you from signing a subrogation waiver.

Subrogation allows injured drivers to have claims paid out quickly since their insurance company knows they can recoup the costs from the at-fault driver. By signing a waiver, you are blocking your insurer from recouping those costs. Additionally, subrogation keeps premium costs lower for good drivers as the financial burden can be shifted to drivers who cause accidents.

Waivers of Subrogation Outside of Car Insurance

For business owners, your clients may request waivers of subrogation so they can avoid being held liable if they are at fault for any losses. However, signing a waiver of subrogation with a client may lead to you losing the ability to recover costs after a loss-causing situation. In general, waivers of subrogation minimize the number of lawsuits and claims filed by parties in a contractual agreement.

To learn more, check out WalletHub’s guide to subrogation.

The three types of subrogation are legal/equitable subrogation, conventional subrogation, and statutory subrogation. They differ based on where the right of subrogation comes from: legal doctrine (equitable), a written contract (conventional), or legislation (statutory).

Types of Subrogation

• Legal/Equitable Subrogation: The right to subrogation is established by legal doctrine, though this right may be modified or eliminated with the existence of a contract. An example of equitable subrogation is when an insurance company collects damages from the at-fault party after a policyholder files a not-at-fault claim.... read full answer

• Conventional Subrogation: The right to subrogation is established by a written contract that either exists independently or modifies a legal right to subrogation. An example of conventional subrogation is when the written contract for a car insurance policy gives the insurer the right to recoup the cost of a settled claim on the policyholder’s behalf.
• Statutory Subrogation: The right to subrogation is established by legislation. This allows an individual to seek compensation from a party with whom they do not have a legal or contractual relationship. An example of statutory subrogation is legislation that allows employees to collect medical expenses from their employer if they’re injured while working.

In general, subrogation is a process through which one party pays another party’s debt and then collects reasonable compensation. The average individual will likely never be involved in the subrogation process directly, but it’s helpful for consumers to have a general understanding of how it works.

Subrogation is most often used in the context of home and auto insurance, when an insurer pays a property damage or injury claim to a policyholder who is not at-fault and then recoups the cost of the claim from the at-fault party’s insurer. Most home and auto insurance claims are the result of equitable subrogation modified by conventional subrogation, since the insurer has a legal right to subrogation in addition to a contract with the policyholder.

To learn more, check out WalletHub’s guide to subrogation.