Carmoon Group Ltd. Business Insurance Hempstead New York

Floyd Arthur Insurance Expert New York

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Insurance Concepts: What Is Subrogation? By Floyd Arthur

If you have any type of insurance policy, whether it’s business insurance, homeowner’s

insurance or automobile insurance, you have probably come across the word

“subrogation” somewhere in your policy terms. However, if you’re like many people, you

are probably not entirely sure what it means.

Subrogation Defined

According to Webster, “to subrogate” means “to put in place of another,” or to

substitute. In legal terms, subrogation gives another party (typically an insurer or

government agency) the right to take the place of another in regard to a legal claim.

Subrogation comes into play when a person sustains damages caused by someone else

and is paid by a third party (known as a collateral source) for his damages. For example,

if you are in an automobile accident that is another driver’s fault, you have the right to

take legal action against the responsible party to be reimbursed for any property damage

or injuries you sustain. However, if you submit a claim to your insurance company for

those damages and the insurer pays, the insurer then gets to subrogate any legal claims.

In other words, it gets to step into your shoes and sue the responsible party to get its

money back.

Alternatively, consider the case of an employee who is injured in a job-related accident

for which a third party is at fault – for example, an accident at a construction site that

results from a subcontractor’s negligence. The injured employee receives workers’

compensation benefits paid by his employer’s insurance. If the injured worker later sues

the subcontractor and wins, the amount he has received from worker’s compensation

must be reimbursed.

Many government benefits programs also contain a subrogation clause. Let’s say, for

instance, that you are injured in a car accident and Medicare pays your $40,000

hospital bill. Later, you sue the party responsible for the accident and obtain a $100,000

judgement, which includes compensation for your medical care. Under the terms of the

subrogation clause, you would be required to reimburse Medicare for its $40,000 loss.

Carmoon Group Ltd. Business Insurance Hempstead New York

Floyd Arthur Insurance Expert New York

http://floydarthur.info * http://carmoongroup.com * http://floyd-arthur.com

What Is the Purpose of Subrogation?

Subrogation serves a dual purpose. On one hand, it allows injured parties to quickly

collect payments for damages from their insurers. At the same time, it allows insurers to

recoup some of their losses, thus keeping the cost of insurance down.

Additionally, subrogation prevents injured parties from “double-dipping,” or being paid

twice for damages by collecting from their insurance companies and then suing the

responsible party in court.

Generally, subrogation clauses require injured parties to cooperate with an insurer who

is pursuing subrogation. This means, among other things, that you are prohibited from

signing any waiver or agreement that absolves a third party or his insurer of any

financial responsibility. If you do, your insurer may be within its rights to refuse to pay

the claim.

Like many insurance concepts, subrogation can be a complex issue, and state laws vary

as to how subrogation clauses may be enforced. If you are unsure about a subrogation

clause in your policy or have other insurance-related questions you would like to

discuss, please don’t hesitate to give us a call. We are available Monday through Friday 9

a.m. until 6 p.m. at 516-292-3780, or you can request a free consultation

online now.