What is Subrogation

Anyone who causes an accident should be held responsible for the payment of damages. You, who parked legally in a parking space at the grocery store, should not have to pay to have your car fixed when Mr. Wrong backs out of his space and hits your back bumper. Mr. Wrong should pay.

Once this accident occurs, you have two choices. You can file a claim through Mr. Wrong’s insurance company and work with an unknown entity to get your car restored to its pre-accident condition. Or you can file a claim through your own insurance company and work with someone you know and, hopefully, trust.

The bad news is this: going through your own insurance company means that you have to pay any deductible you have on your policy for that type of coverage. If you have a $500 collision deductible, you will be out $500 upfront to have your car fixed. You may or may not get this money back. If your car is not drivable, and you can afford the deductible, sometimes it is worth the cost just for peace of mind and speed of repairs.

Enter Subrogation. If your insurance company pays to have your car fixed, they will then seek reimbursement from Mr. Wrong’s insurance company. (Or Mr. Wrong himself if he was uninsured.) At this point, you have already been paid for your claim, so any money they receive as reimbursement, they keep. The exception to this is if they are successful in getting your deductible back. If they are, you will be repaid that amount. It does happen. Sometimes.

You also need to realize that even though your insurance company is handling the Subrogation on your behalf, you will still be involved in the process. The other company’s adjuster will want to take a statement from you and gather information they will need to prove their driver was at fault. This will take time, and you are required by your policy to take whatever action is needed to help your company in their subrogation of your claim.

The flip side of the subrogation coin occurs when you are at fault for an accident. The other driver’s company will then be looking to collect damages for their insured’s car and/or injury from you or your insurance company. Provided you have the proper coverage, your insurance company will pay for your damages, but you will be required to pay your deductible. Once your fault has been determined, your insurance company will also pay damages for the other party.

A key point to remember is that your insurance company will only pay up to your policy’s limits. If your policy limit is $15,000 for property damage (for the other party’s car) and he was driving a 2010 BMW that just happened to be totaled, once your insurance company has paid their part, you will need to come up with money to cover the rest of the claim. Be sure your policy limits are adequate for today’s car and medical prices.