by Ed Sneneh, Agent for Auto SR22 Insurance in Chicago Illinois
Subrogation is the substitution of one party in the place of another party (normally two parties of legal contract) in regard to a claim or legal right. When a victimized party becomes eligible to recover for damages caused by another third party and the insurance company of the victim pays him or her for the damages under an insurance contract, then the insured person (victim) will subrogate his or her right to the insurer that paid for the damages to collect for the damages on his or her behalf. This process in which the insured person (victim) relinquishes his or her right to the insurance company to collect on his/ her behalf is called Subrogation.
Subrogation goes hand in hand with the Principle of Indemnity which implies that insured people cannot and should not benefit from insurance claims and should only be reimbursed for their loss. Subrogation was developed to prevent insured people (victims) from collecting twice, once from their own insurance company, and second from the people who caused the damage or their insurer. In other words, people who suffer losses can only collect maximum up to their insurance limits.
Subrogation clauses can be found in almost all insurance contracts, including homeowners insurance policies, auto insurance policies, commercial insurance policies, and health insurance policies. Subrogation is not relevant to life insurance policies.
Example of Subrogation in Auto Insurance: John purchases a personal auto policy, John has full coverage on his auto. Someone hit John's car, causing a damage of $3,000.00 Not eager to go after the other driver, John calls his agent and his company decides to fix his car. John insurance company decides to pay $2,500 which is the cost of the repair ($3,000) minus John's deductible of $500.00. According to the subrogation clause, John's insurance company has the right to go after the driver that hit John and collect for damages. If John's company collects from the other driver or the driver's insurance company, then John's will be entitled to his deductible only. John cannot collect from his company and at the same time seek reimbursement from any other third party.
Waiver of Subrogation Endorsement.
It is clear that the subrogation clause works very well in favor of insurance companies. The clause may not work very well in business contracts and business insurance, especially contractors insurance and workers compensation insurance. Waiver of Subrogation is an endorsement that is sought by some insured people to stop insurance companies from seeking damages from certain people listed on the policy, in the even of losses suffered by the insured and thought to be caused by the parties seeking the waiver. In other words, waiver of subrogation is meant to keep people requiring it stay away from litigations and lawsuits.
Example of Waiver of Subrogation: ABC Construction is trying to execute a multi million project to extend construction of an existing mall owned by XYZ Properties. XYZ Properties is asking ABC Construction to provide proofs of builders risk insurance, workers compensation insurance and commercial general liability with waiver of subrogation endorsements on both policies. ABC Construction called their agent who asked them for an additional $2,500 to waive the subrogation regarding XYZ Properties with their Nice Insurance Company. This waiver of subrogation will keep XYZ Prosperities from any lawsuits brought by ABC Construction or Nice Insurance Company as a result of executing that project.