Car Insurance Subrogation

A subrogation claim is a claim filed by an insurance company against an at-fault party to recoup any costs paid out in a policyholder's claim. Subrogation generally is the process of recovering those costs, while a subrogation claim is the legal action taken by an insurer against another company or an at-fault party.

In car insurance, subrogating a claim usually occurs when an insurance company tries to sue the at-fault driver's insurer after a car accident to recover money paid to the injured driver. While subrogation is most common in auto insurance, it also happens in health insurance and home insurance in a similar fashion.

Key Things to Know About Subrogation Claims

• The process is generally hands-off for the injured party. Your insurer handles it on their own and will notify you of the subrogation claim.

• If you do not receive notice of a subrogation claim being filed, you are legally able to sue the at-fault party to recover deductibles and other costs not covered by your insurance.

• The at-fault party may offer a waiver of subrogation as part of a settlement deal. Be aware that some insurance policies explicitly forbid signing a subrogation waiver.

• If you are the at-fault party and a subrogation claim is filed against you, your insurance company will negotiate the claim with the injured party's insurer.

• If you are the at-fault party and you're uninsured, you can be sued directly by the injured party's insurer or the victims themselves.

To learn more, check out WalletHub's guide to 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 occurs 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.

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.

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.

• 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.

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.

• 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.

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.

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.

A waiver of subrogation is a legal clause that prevents an insurance company from recovering the money they paid on a claim from the responsible party's insurer. In car insurance, a waiver of subrogation usually keeps the not-at-fault driver's insurer from recouping claims payments from an at-fault driver.

Waiver of Subrogation Example

Say Driver B ran a red light and hit you when you were driving legally. You need your car repaired soon, but Driver B won't admit fault, so you file a collision claim with your own insurance company and pay your deductible.

Then, your insurer begins the process of subrogation, negotiating with Driver B's insurance company to try to replace the money it paid for your claim. You will even get your deductible back if subrogation is successful.

However, Driver B may offer to pay a set sum for the damage if you agree to sign a waiver of subrogation. Signing this waiver would mean forfeiting your right to get any more money from Driver B or his insurance company, regardless of any expenses from the accident that might arise in the future.

The purpose of subrogation is to prevent you and your insurance company from paying for damage caused by a third party. Through subrogation, your insurance company can recover money from the at-fault individual on your behalf after you file a claim. Subrogation also keeps rates low for policyholders and allows you to receive a claim payout before fault has been determined.

3 Benefits of Subrogation in Car Insurance

• Speeds up the claims process for policyholders.
• Refunds insurers for claims if their customer wasn't at-fault.
• Keeps premiums low for policyholders who aren't responsible for damage.

In car insurance, subrogation applies when a car accident occurs and the not-at-fault driver files a claim with their own insurance company. The not-at-fault driver's insurance company then begins subrogation with the at-fault driver's insurer in order to recover the amount of the claim. Drivers can often have their deductible reimbursed, too. Without subrogation, drivers would have to wait for fault to be completely determined before receiving a claim payout.

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

If subrogation is pending, it means that one car insurance company is trying to recover money from another car insurance company or another driver. Subrogation is the system through which insurers pay claims quickly, but then request that the amount of the claim be refunded to them by the responsible party after fault is determined.

For instance, subrogation is often relevant to car accidents. Say you are hit by a distracted driver, causing damage to your car. You file a collision claim with your own insurer because the other driver hasn't admitted fault and you need your car fixed soon. In this case, your insurance company will begin subrogation, trying to recover the cost of the damage from the at-fault driver's liability insurance. Depending on your state laws and whether you were determined to be partially at-fault, subrogation might mean that you get your deductible refunded.

When the subrogation process has the status set to closed, it means that the insurance company either failed or successfully managed to get reimbursement from the at-fault party's insurance company. You can find out your subrogation status and additional details about this process by contacting your representative.

Subrogation is the process that allows your car insurance company to recoup losses from the at-fault driver's insurer for expenses they incurred after paying out a car accident claim. This process allows insurers to compensate you for your accident before determining who was at-fault for the crash, which can sometimes take a long time.

A claim with your insurance company will usually cover any damages your car suffered while getting it washed. As long as you don't sign a subrogation waiver, your insurance company is free to try and recoup their losses through the subrogation process.

Subrogation describes the process in which an insurance company attempts to recover losses from a third party that caused the damages or loss incurred by the insured. Since this process takes place entirely between insurance companies, policyholders aren't usually involved. You can however, always discuss with your agent if they believe it's prudent to pursue a subrogation claim, as it can be different on a case by case basis.