Subrogation refers to the process an insurance company uses to seek reimbursement from the responsible party for a claim it has already paid.
Right of subrogation: When the principal debtor defaults and the surety discharges the liability to the creditor, the surety gets all the rights possessed by the creditor in respect of the debt. He becomes a creditor of the principal debtor and succeeds to all creditors’ right. This right is called the right of subrogation.
Subrogation matters to you if –
- You have a covered loss, and
- You submit a claim to your insurance company, but
- Another party is actually responsible for all or part of the damages (i.e. you have a car accident and the other driver caused the accident, or if damage to your home was caused by a faulty appliance)
A right of subrogation is the right of a person who is secondarily liable on a debt, and who pays the debt, to personally enforce any right that the original creditor could have pursued against the principal debtor. The right of an insurer to be subrogated to the rights of its insured is typically based upon:
- the terms of the policy of insurance; or,
- the right of equitable subrogation, i.e., by operation of law.