A standard insurance policy has several clauses
and conditions to the coverage it provides, and subrogation is one of those clauses found
in many policies. But what is subrogation? It’s easiest to
explain using an example. Let’s assume your new dishwasher catches
on fire due to mechanical problems and causes significant damage to your home. Because fire
is a covered cause of loss in your homeowners policy, your insurance company will pay for your loss up to the limits stated in your policy, minus your deductible. Since faulty wiring by the dishwasher
manufacturer caused the loss, the manufacturer is ultimately responsible for your damages.
Because your insurance company paid you for the loss, they have the right to try and recover
their payment for that loss from the dishwasher manufacturer. This is subrogation.
Now normally, you would have a claim against the dishwasher manufacturer. However, as soon as your insurance company pays you for your damage, your claim against the manufacturer is transferred, or assigned, to your insurance company. Your insurance company may have you sign a subrogation receipt. This confirms the amount of your loss, the company’s assignment for what they paid, and your agreement to assist the company in recovering their payments for
the loss. If your insurance company recovers the full amount they paid you they will refund you the amount of your deductible.
If the full amount is not recovered, you will be reimbursed for the amount of your deductible proportionate to what your insurance company recovered.
If you suffered damages that were NOT paid by the insurance company, You still have the right to seek payment from the dishwasher manufacturer. However, your insurance company will not be able to help you recover those additional expenses because they have no legal interest or recovery rights for the damages they did not pay.
So back to our insurance policy. The subrogation condition will typically indicate if you have
the right to waive subrogation prior to a loss and will indicate the insurance company’s
right to a claim against responsible parties for losses the company has paid for.
The subrogation condition will also outline your responsibility in cooperating with your
insurance company in their subrogation efforts for losses they have paid.
When you are attempting to collect out-of-pocket expenses against someone responsible for your
damage, make sure you don’t release that party from any other damages they are responsible
for. Doing so, may violate your policy’s subrogation
condition, eliminating your insurance company’s recovery rights, preventing them from paying
your claim! If you have questions about the subrogation
clause in your insurance policy, contact your independent insurance agent to learn more!