Legal terminology is always intimidating, isn’t it? When a car insurance company describes even a minor administrative action in formal legal language, it can sound downright terrifying.
The term subrogation is a classic example. If you’ve been notified that there’s a subrogation claim against you, you’re probably panicking right now. Here’s our suggestion: Don’t!
Subrogation is actually a fairly common and straightforward legal maneuver. In this article, we’ll walk you through the basics of subrogation, and explain what you can expect if there’s a subrogation claim against you.
First things first: What is subrogation?
Subrogation is a simple legal action. It allows one party to “step into another’s shoes,” and go after something that the second party is legally owed. For instance, if Alice owes you a dollar, Bob can pay you the dollar instead. Bob then “subrogates” against Alice, meaning he “steps into your shoes” and asks Alice to pay _him _the dollar that she originally owed you.
This is a very useful maneuver in car insurance dealings. Determining who was at fault, and settling out money accordingly, can take a long time - but after an accident, everyone wants to get their cars repaired and back on the road again as quickly as possible. So insurance companies will often cover their drivers’ costs upfront, then subrogate against other parties to recover their money.
A simple example of a subrogation claim
Say you’re driving through an intersection. The light is green, and you have the right of way. But the driver coming down the cross-street isn’t paying attention. They blow the red light, colliding with your car and causing $3,000 in damage. Fortunately, you have comprehensive insurance that covers these damages. But let’s also imagine that the other driver refuses to admit fault. It could take weeks or months for your insurance company to prove the other driver’s fault - but you simply can’t wait that long to fix your car. You have places to be!
In this scenario, your insurance company will pay you $3,000 to cover your damages. You take the money to a mechanic, get your car fixed, and get back on the road. Your insurer will now _subrogate _against the other driver - meaning they’ll “step into your shoes” and seek reimbursement for the $3,000 they gave you. Assuming the other driver is properly insured, this is now a behind-the-scenes administrative issue between the two insurance companies. Essentially, subrogation has allowed everything to move quickly.
What does it mean if there’s a subrogation claim against you?
If you’ve been notified that there’s a subrogation claim against you, it simply means that another driver’s insurance agency is holding you responsible for damages their client sustained. They’ve already paid out money to cover their driver’s damages, and they’re seeking reimbursement from you. Assuming you are properly insured, this issue will largely be handled between the two agencies. Your involvement may be very limited. But obviously, if you’ve received a notice of a subrogation claim, you should _immediately _contact your insurer to make sure they’re aware of the claim and handling it appropriately.
Remember: Your insurance company represents you, and you should work closely with them every step of the way. Don’t contact the other driver’s insurance agency without first discussing it with your own insurer and / or a lawyer. (We covered this common mistake in depth in a previous article, “Someone hit my car. Whose insurance should I call?” It’s worth a quick read.)
So there’s a subrogation claim against you. Now what?
Now the two insurance companies will work to determine who was at fault, and to divide up funds accordingly. Let’s say you were involved in an accident which caused $10,000 to another driver’s car. The driver’s insurance company covered their $10,000 repair, and is now subrogating against you, through your insurer, for reimbursement.
If you were completely at fault, your insurance policy will have to cover the full $10,000 the other agency is seeking. But if the two agencies agree that you were only 25% at fault, you’ll only be liable for $2,500. Even more complex scenarios can emerge for various reasons, but this is the gist of subrogation. It’s simply a tool to speed up payouts and recover money after the fact.
What is a subrogation waiver?
After an accident, you may be asked to sign a subrogation waiver. Proceed very carefully here, because waiving subrogation can cause serious financial headaches down the line.
To illustrate, let’s return to our first example. Another driver ran a red light, causing serious damage to your vehicle. But before your insurance company has paid for your repairs, the other driver’s agency offers you a settlement payout. You jump on the money and sign without reading the fine print. (Do we even have to tell you that’s a bad idea?)
You use the payout to fix your car… but then you develop a serious medical issue resulting from the crash. So you file a claim with your insurance agency. After all, the other driver was completely at fault - their insurance should cover your medical bills, right? Unfortunately, no. The claim is denied by your insurance company. They won’t help you. What went wrong?
It turns out that you signed a subrogation waiver when you accepted the settlement. It legally prevents your insurer from trying to recover money from the other agency on your behalf. And of course, your insurer isn’t going to pay you money that they can’t recover from the other party. So now you’re stuck paying for your own medical costs.
The lesson is this: Don’t sign a subrogation waiver without carefully consulting with your insurance agency and / or a good lawyer.
The Bottom Line
If there’s a subrogation claim against you, don’t panic - but do notify your insurance company right away. Subrogation is a legal means by which an insurance agency seeks to recover funds on behalf of their client. How this process turns out will depend entirely on who was at fault in the accident, and it’ll probably be negotiated behind-the-scenes between the two insurance companies. Finally, as always, don’t sign any paperwork without reading the fine print (and talking to a lawyer, if necessary).