What is a Subrogation Claim and How Does It Apply to Auto Insurance?

The subrogation claim meaning applies when your insurance company initially pays out for your claim and then collects the money later from the at fault party. Your insurance provider takes care of the subrogation auto insurance claim, and they will refund you your deductible if they are able to retrieve compensation from the third party.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Insurance Feature Writer Rachel Bodine

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Mar 11, 2022

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Many drivers are unfamiliar with the term “subrogation”. However, if you want to fully understand your auto insurance policy, then it’s crucial you understand the subrogation process.

What is subrogation? How does it apply to car insurance? Today, we’re explaining everything you need to know about how subrogation claims can affect your car insurance.

What is Subrogation?

Subrogation is a legal right that allows one party to make a payment that is actually owed by another party, then collect the money later.

In terms of car insurance, subrogation allows your car insurance company to make a payment that is actually owed by the other driver’s insurance company.

If you’ve been in a collision that wasn’t your fault, for example, then your insurance company might pay your medical bills today knowing that they’ll eventually claim the money from the other driver’s insurance company.

Subrogation is one of several methods used by car insurance companies to recover money they paid out to insured drivers.

Typically, subrogation occurs in the last part of the claims process. In many cases, the insured individual – the driver or policyholder – hears nothing about the process. That’s because subrogation mostly occurs between insurance companies.

Subrogation might sound like a boring process with little impact on an average driver like you. However, there’s one major benefit to your insurance company pursuing subrogation: if their subrogation claim is successful, then your insurance company is required to refund your deductible. That means the $250, $500, $1000, or $2000 payment you made on your claim will be returned to you.

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How Does Subrogation Work?

You might hear little about the subrogation process. However, your insurance company is legally required to inform you of the subrogation process. Before your insurance company contacts the other insurance company for compensation, they will first contact you.

Why are insurance companies legally required to inform customers of the subrogation process? Why do you care about an insurance company seeking money from another insurance company? There are two main reasons:

  • If the insurance company is pursuing subrogation to recover costs, then they are required to recover the cost of your deductible as part of the process, then provide you with a refund if your deductible is recovered.
  • Your insurance company will generally require you to cooperate with any attempts to pursue subrogation. That means you are not permitted to sign a waiver or agreement releasing the other driver from responsibility, for example, if the other driver is deemed at-fault for the collision.

Can I Still Recover My Deductible If My Insurance Company Isn’t Pursuing Subrogation?

Yes, you can still recover your deductible from the other driver’s insurance company if your company isn’t pursuing subrogation.

However, it’s generally easier to let your insurance company recover your deductible for you.

When Do Car Insurance Companies Pursue Subrogation?

Car insurance companies will generally pursue subrogation when the other driver is at-fault in a collision. In this case, the insurance company will take two basic steps:

Step 1) Your insurance company will pay your claim to indemnify you, allowing you to cover your damages and injuries.

Step 2) Your insurance company will pursue subrogation to recover the money they paid.

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Why Do We Need Subrogation?

You may be thinking: why do insurance companies bother with subrogation? Why can’t the at-fault insurance company just pay the claim they’re owed?

The reason is simple: it takes time to determine who’s at fault for a collision. A complete investigation needs to take place. It might take days, weeks, or months to determine who’s at-fault for an accident.

During this investigation period, drivers can still have expenses. You might be out of work due to injuries, for example. You might have medical bills. You could have car repair costs, car rental costs, and other expenses.

What About a Collision Where I Was Partially At-Fault?

What happens if you’re partially at-fault for a collision? How does the subrogation process work in this situation?

If your insurance company’s investigation finds you to be partially at-fault in an accident, then you’ll receive an appropriate amount of compensation based on your at-fault percentage.

If you were 30% at-fault for the collision, for example, and your insurance company chooses to pursue subrogation, then you’ll be entitled to a 70% refund on your deductible.

Avoid Waiving your Rights to Subrogation

In some situations, a driver might inadvertently waive their right to subrogation. This typically occurs when you sign a settlement with the other driver’s insurance company.

That settlement offer might look like a standard document. The other driver might agree to provide you with a certain amount of money in exchange for settling the complaint. However, the other driver’s insurance company might insert a “waiver of subrogation” clause within that agreement.

If you sign a settlement with a “waiver of subrogation” claim, then you could be in big trouble.

First, you’ll avoid getting a refund on your deductible. Second, your car insurance company might refuse to pay your claim entirely. That’s because your insurance company is no longer able to seek reimbursement from the other driver’s insurance company.

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In most auto insurance cases, subrogation is a straightforward process that takes place behind the scenes. The biggest impact subrogation has on your claim is that you’ll receive your deductible back (if the subrogation process is successful and you were not at-fault for the collision). If you sign a “waiver of subrogation” with the other driver’s insurance company, however, then your own insurance company might refuse to cover your claim. That’s how subrogation can affect your car insurance policy.

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