Subrogation (Insurance): When people suffer losses, they turn to their insurance company to “make them whole” – even if there is some other individual who may be responsible for causing the loss. When this happens, the injured person’s insurance company will pay the claim and “step into the shoes” of the injured person, and thereafter seek reimbursement from the responsible party. For example, suppose you own a storefront, and one of your customers drives his car into your building. You have insurance, so you tender a claim to your insurance company to fix the damage. Your insurance company pays you but then your insurance company has the right to seek recovery from the driver who caused the collision. When the insurance company brings in such a claim, it is “subrogated” to the legal rights that you would otherwise have had, so the claim is called a “subrogation claim.”
Second, it helps keep premiums down. When insurance companies recover on their subrogation claims, it brings the overall cost of claims down, which in turn allows them to charge lower rates to their customers—meaning, lower premiums, cheaper insurance.
Third, and perhaps most important, subrogation assists in keeping our world a safer place. Imagine if you had a house fire and you didn’t have insurance. Would you know who to call in order to scientifically determine what caused the fire? Would you know who to call to make sure that, if there was a third party responsible for the fire, that the claim against that party was properly handled so that they were ultimately held responsible? The answer to these questions is almost certainly no—your life is in turmoil when you sustain a house fire, so you are unable to deal with all of the complicated and important matters going on around you. But when you have an insurance company handling the claim, you have professionals who are experts at doing just those important and technical things, and who can take the steps necessary to pursue a claim against whoever caused the loss. When they do that, the wrongdoer has its “feet to the fire” because the wrongdoer/s has to shell out money to compensate the insurance company for the loss. Thus, subrogation holds manufacturers accountable and provides incentive to make products safe.