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Subrogation is a term that's well-known in insurance and legal circles but sometimes not by the policyholders they represent. If this term has come up when dealing with your insurance agent or a legal proceeding, it would be in your self-interest to know the steps of how it works. The more knowledgeable you are about it, the more likely it is that an insurance lawsuit will work out in your favor.

Any insurance policy you hold is a commitment that, if something bad happens to you, the firm that insures the policy will make good without unreasonable delay. If your home suffers fire damage, for example, your property insurance agrees to pay you or enable the repairs, subject to state property damage laws.

But since determining who is financially accountable for services or repairs is typically a heavily involved affair – and delay sometimes increases the damage to the victim – insurance companies usually decide to pay up front and figure out the blame later. They then need a path to recoup the costs if, in the end, they weren't in charge of the payout.

Can You Give an Example?

Your kitchen catches fire and causes $10,000 in home damages. Luckily, you have property insurance and it takes care of the repair expenses. However, in its investigation it discovers that an electrician had installed some faulty wiring, and there is a decent chance that a judge would find him liable for the damages. You already have your money, but your insurance firm is out $10,000. What does the firm do next?

How Subrogation Works

This is where subrogation comes in. It is the method that an insurance company uses to claim payment after it has paid for something that should have been paid by some other entity. Some companies have in-house property damage lawyers and personal injury attorneys, or a department dedicated to subrogation; others contract with a law firm. Under ordinary circumstances, only you can sue for damages to your self or property. But under subrogation law, your insurance company is extended some of your rights for having taken care of the damages. It can go after the money that was originally due to you, because it has covered the amount already.

Why Do I Need to Know This?

For one thing, if you have a deductible, it wasn't just your insurance company who had to pay. In a $10,000 accident with a $1,000 deductible, you have a stake in the outcome as well – namely, $1,000. If your insurance company is timid on any subrogation case it might not win, it might opt to recover its losses by increasing your premiums. On the other hand, if it knows which cases it is owed and pursues those cases aggressively, it is acting both in its own interests and in yours. If all is recovered, you will get your full thousand-dollar deductible back. If it recovers half (for instance, in a case where you are found 50 percent responsible), you'll typically get $500 back, based on the laws in most states.

In addition, if the total expense of an accident is more than your maximum coverage amount, you could be in for a stiff bill. If your insurance company or its property damage lawyers, such as Attorney at law in WA, pursue subrogation and wins, it will recover your expenses in addition to its own.

All insurers are not the same. When comparing, it's worth weighing the reputations of competing companies to determine if they pursue winnable subrogation claims; if they resolve those claims quickly; if they keep their policyholders advised as the case continues; and if they then process successfully won reimbursements quickly so that you can get your money back and move on with your life. If, on the other hand, an insurance firm has a reputation of paying out claims that aren't its responsibility and then safeguarding its profitability by raising your premiums, you should keep looking.