Subrogation

What subrogation means

Subrogation is the insurer's right, after it pays a loss, to step into the insured's shoes and recover what it paid from the third party who caused the loss. The insured had a right to collect from the person at fault; once the insurer pays the claim, that right passes to the insurer, up to the amount the insurer paid.

A simple health insurance example: another driver runs a red light and injures your client. The client's health plan pays the hospital bills promptly, without waiting to see who was at fault. The plan then pursues the at-fault driver, usually through that driver's liability insurer, to get its money back.

Why insurers have it

• It prevents double recovery. Without subrogation, the injured insured could collect the same

medical bills twice: once from the health plan and again from the at-fault party. Subrogation keeps insurance a contract of indemnity -- it restores the insured, it does not let the insured profit from a loss.

• It puts the cost where it belongs. The person who caused the harm, not the insured's own

insurer, ultimately pays.

• It helps hold down premiums. Money recovered from responsible parties reduces the insurer's

net claim costs.

How it works in practice

The right comes from the policy's subrogation clause (and from general legal principles). In health coverage it usually works in one of two ways:

1. The insurer sues or files a claim against the at-fault party (or that party's insurer) in

its own right.

1. If the insured recovers first -- for example, through a personal injury settlement -- the

insurer asserts a reimbursement claim or lien against that recovery for the benefits it already paid.

Either way, the insurer's recovery is limited to what it paid. Anything beyond that belongs to the insured.

The insured's duties

Because the insurer inherits the insured's rights, the insured must not impair them. The insured is expected to cooperate -- report the accident, provide information, sign needed documents -- and must not release the at-fault party from liability without the insurer's consent. Signing away the claim against the wrongdoer can jeopardize the insured's benefits.

Limits and distinctions

• An insurer can never subrogate against its own insured.
• Subrogation applies to indemnity coverages such as medical expense and property coverage. It

does not apply to life insurance or other valued contracts that pay a stated amount regardless of the actual loss.

• Subrogation is not coordination of benefits. Coordination of benefits decides which of the

insured's own health plans pays first; subrogation is a claim against an outside wrongdoer.

• Many states limit subrogation, for example by requiring the insured to be fully compensated

("made whole") before the insurer recovers. The exact rules vary by state and plan type.