What is Subrogation? How is it used in an Auto Insurance Claim?

If you have ever submitted an insurance claim of any kind, you have probably heard the word subrogation. Although you might have a general idea of the meaning of this term, the process that underlies it is quite involved and complex.

The process of subrogation comes into play when an insurance carrier collects back money, from a responsible party or that party’s insurance carrier, on behalf of their insured party.

When you submit an insurance claim, even before the physical damage on your vehicle is inspected, the adjuster (claims representative) handling your claim sets a reserve for the amount of damage. This reserve is established to approximate the amount of money needed to cover the physical damage on your vehicle.  As soon as your vehicle has been inspected, the reserve amount is adjusted, to represent a more accurate approximation of the damage. When you present an injury claim to another party’s insurance carrier or to your own insurance company, in the case of an uninsured motorist bodily injury claim, a reserve is set to approximate the ultimate payout for this claim.  Then throughout your treatment this figure is adjusted to more accurately reflect the final cost.

When a “crash” is not your fault or is partially the fault of the other driver your insurance carrier has a right of subrogation on your behalf. This is the mechanism through which you receive reimbursement of your collision deductible.

Depending on the responsibility laws of your state, subrogation attempts are initiated as soon as you make your statement of facts to your insurance company. The claims representative will ask you for the name of the other party and contact information, and also for the name of the other party’s insurance carrier and their contact information. As soon as your claims representative has the information, she/he will call the other party’s company to establish all reference and contact information, and to advise what the status of responsibility is.

Throughout the handling of your insurance claim the adjuster repeatedly contacts the other party’s insurance adjuster. An attempt is made to arrive at a liability determination and agreement as soon as possible. In some cases this is not an easy matter. Often there are conflicting statements, or witnesses who are not clear on what occurred, or even a number of vehicles involved. The location of damages can assist somewhat in establishing the facts, as can an on-scene investigation of the area where the “crash” occurred. 

In some cases, both adjusters have completely different perceptions of how the accident occurred, and there is no easy way to arrive at a consensus. If the adjusters are with different insurance companies, there is a process called “Intercompany Arbitration”, which is then employed to try to resolve the issue of liability. This is a process through which both adjusters present a written argument, on behalf of their insured, and a panel of insurance company professionals makes a determination on the appropriate percentage of fault.

If two drivers are insured by the same company, the two adjusters representing each driver, meet in person or on the telephone, to present the respective liability case to the other. A supervisor or supervisors makes the decision on percentages of liability, if no consensus is possible between the two adjusters, on the issue of responsibility for the “crash”.

Whatever the method, subrogation can not be collected on your behalf, until there is an agreement on the percentage of fault. This is why it sometimes takes so very long for you to receive back your deductible.

One of the most difficult situations encountered in subrogation attempts, is when the responsible party either does not have high enough policy limits to cover the full amount of the loss, or is uninsured. In both cases subrogation will be attempted, to the limits of the law.

Subrogation is collected directly from parties who do not have insurance in place.  As you can imagine this is not easy, and often involves a protracted time period and payment plan.

There are circumstances under the law, when subrogation is not allowed, as for a “bodily injury” claim.  As the non-fault or partially at fault party with an injury, you must present your claim directly to the other party’s insurance carrier, or retain an attorney to do so. The percentage of fault generally follows the physical damage determination, so it is useful to know what was decided between the two adjusters handling the property damage, before embarking on the settlement of your “bodily injury” claim.

Subrogation is “gravy money”, to an insurance company.  Since reserves for claims have to be set, regardless of whether any of the money is ever collected back from a responsible party, there is no offset for subrogation. This means that every dollar of subrogation money is a direct credit to insurance costs, and helps to lower your premiums.

For this reason you should care how fault is determined, and whether subrogation is pursued. The claim truly is not final until the subrogation department makes its collections. Feel free to follow up with your insurance company until all subrogation monies are received.  After all, subrogation is money in everybody’s pocket and instrumental in keeping premiums low.