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Subrogation of Rights

The insurance company's right to go after the person that caused the damage!

Subrogation of Rights is a very powerful clause.

If or when an insurance company makes a payment on behalf of an insured, then the rights of recovery (if any exist) are transferred to the carrier.

For example, the medical payments your insurance company makes to your doctor on your behalf are going to be owed to your insurance company by the person that caused the accident.

They will seek compensation for payments and your rights against that party will no longer exist (for the same payments).

The insurance policy ensures that full subrogation of rights exists and that you respect them. 

The insurance carrier only acquires the subrogation of rights for payments actually made.

This is important because the insured retains the rights for payments not made or anything the carrier excludes. The insured could file a lawsuit against the responsible party for those payments.

The lawsuit could include deductible amounts, diminished value, pain and suffering, loss of consortium, etc. If the total loss settlement is low, then the insured could sue for the difference.

Note: an insured could still file a lawsuit for the total amount of damages. The insurance company will put a lien against the settlement amount for what they paid.

If the insured recovers any money, the insurance company will get pay first until their balance is paid in full (when full subrogation of rights occurs). Anything beyond that will be for the insured.

The opposite situation is more common. The insurance company pays for your damages, and then it takes action against the responsible party (seeks subrogation of rights).

They are enforcing the rights they gained through this clause, and they do this by filing or negotiating with the responsible party’s insurance company (if that person was insured properly).

If that party is not insured, then the insurance carrier will probably refer the amount owed to a collection company.

What is different here is that most insurance companies will also refer the deductible amount paid by the insured (your subrogation of rights) as a courtesy to the insured.

Most insurance carriers do this, but some will only try to recover what they have paid and not protect your deductible payments (they have no actual obligation).

If your insurance carrier takes it upon themselves to recover your deductible, then when and if the insurance company recovers any money, the funds should be distributed between the insured and the insurance company according to the percentages paid by the carrier (the damages) and by the insured (the deductible).

Let me explain.

For example, you sustain $10,000 worth of damage. Your collision deductible is $500. The insurance company pays $9,500 to your bodyshop. The accident is with an uninsured driver and you do not carry Uninsured Motorist Property Damage.

The insurance company only recovers $5,000. Since $5,000 is 50% of the total damages ($10,000), then you should receive a check for $250 (50% of your deductible), and your carrier will keep $4,750 (50% of what they paid).

Let us change this hypothetical situation a little.

Let us say they recover $9,000. Since $9,000 is 90% of the damages paid ($10,000), then each party will get 90% of what they paid.

You would get a check for $450 (90% of $500) and your insurance will keep the $8,550 (90% of $10,000).

There is however some states that make the insurance company reimburse the deductible first, before they can recover their own payments.

It is important to mention that when there is another insurance company involved other than your own, these payments will be made to you promptly.

Nevertheless, when your insurance is the only one involved, then you have to rely on their collection agency. Many times insurance companies recover for damages they have paid out but never make any payment to their insured.

They will tell you that they will inform you about the subrogation of rights status, but many clams will fall through the cracks.

You need to continue calling or writing to see if there is any money owed to you.

Read Subrogation of Rights Page II

Click below for an explanation of insurance coverages and terms:

Coverages and Terms Overview

Automobile Liability Insurance or Liability Page 1
Automobile Liability Insurance or Liability Page 2

Automobile Medical Payments or Personal Injury Protection (PIP) Page 1
Automobile Medical Payments or Personal Injury Protection (PIP) Page 2

Collision Coverage (Protection Against Loss to the Auto) Page 1
Collision Coverage (Protection Against Loss to the Auto) Page 2

Comprehensive Coverage (Protection Against Loss to the Auto) Page 1
Comprehensive Coverage (Protection Against Loss to the Auto) Page 2

Under or Uninsured Motorist Property Damage (UMPD) Page 1
Under or Uninsured Motorist Property Damage (UMPD) Page 2

Under or Uninsured Motorist Bodily Injury (UMBI)

Rental Reimbursement or Loss of Use Coverage Page 1
Rental Reimbursement or Loss of Use Coverage Page 2

Restoration Coverage

Towing and/or Road Assistance Coverage (Emergency Packages)

Insurance Clauses and Terms

Overview
Actual Cash Value or ACV
Additional Insurance Clause
Cancellation of Coverage Clause
Choice of Law Clause
Forum Selection Clause

Duty to Cooperate Clause
Duty to Report Losses Clause
Financial Responsibility Clause
Insurable Interest Concept
Interpretation of the Policy Concept

Mandatory Arbitration Clause
Mitigation of Damages Clause
Non Duplication of Benefits Clause
Proof of Loss Clause
Promissory Estoppel Concept

Reservation of Rights Concept
Reasonable and Necessary Clause
Right of Appraisal Clause
Right of Settlement Clause
Rights of Counsel Concept

Subrogation of Rights Clause Part I
Subrogation of Rights Clause Part II
Statute of Limitations Concept
Replacement Cost Value
Restoration Coverage
Transfer of Benefits Clause

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