What is the purpose of 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.

Subrogation is good because it provides a way for insurers to recover costs from at-fault drivers, which helps to keep overall car insurance costs lower. Subrogation benefits both good drivers and insurance companies by making sure the at-fault party is responsible for the damage they cause.

Benefits of Subrogation

• Claims can be paid out quickly since insurers know they can recover the costs if you’re found to be not at fault.... read full answer

• Premiums are cheaper for good drivers because the costs fall to at-fault drivers.

• Claims are easier since you don’t have to worry about suing the at-fault party directly.

The only time subrogation is not beneficial is when you are the at-fault driver, especially if you are uninsured. You are liable to be sued directly by the injured party and their insurance company for their accident-related expenses. You’ll likely have to deal with the headache of a long settlement process and legal fees on top of potentially owing hundreds of thousands of dollars.

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

No, you do not have to pay subrogation if you have car insurance. Subrogation is when an insurance company recovers money that they paid out in a claim when their policyholder was not at fault, and if the drivers involved are insured, the process of subrogation will take place between their insurance companies. If the at-fault driver was uninsured, however, the other driver’s insurance company might attempt to make them pay for the damage out of pocket through the subrogation process.... read full answer

In other words, the only time you might need to pay as a result of subrogation is when you don’t have enough insurance coverage. And even then, if you choose to not pay a subrogation claim, the insurer will continue to mail requests for reimbursement or might decide to take legal action.

Subrogation Payment Example

Driver A rear ends Driver B. Driver B files a claim with their own collision insurance, pays their deductible, and receives a payout from their own insurance company, Insurer B.

Insurer B doesn’t want to pay for the damage caused by someone else, so they begin the process of subrogation with Driver A’s insurance company to recover the deductible and claim amount.

How the Subrogation Process Works

If you receive a letter of subrogation from another insurer, you should immediately let your own insurance company know. Car insurance companies have lawyers, subrogation adjusters, and other experts who will handle the demand and let you know if they need any information from you.

If you do not have insurance, a letter of subrogation is a sign that you might need to hire a lawyer. In this case, the other driver’s insurer will likely pursue a settlement or even litigation against you. Individual cases vary, so legal representation can help you determine whether you need to pay subrogation.

For more information, check out WalletHub’s guide to subrogation.