What does 'subrogation' mean in insurance terms?

Subrogation in insurance refers to the insurer's right to step into the shoes of the insured after a loss has been paid and pursue recovery from a third party that may have caused that loss. This principle is crucial because it prevents the insured from receiving a double recovery for the same loss, meaning they cannot claim compensation from their insurer and also pursue a third party for the same damage.

Once the insurance company pays out a claim, it has the legal right to seek reimbursement from any party that may have been responsible for the loss. For example, if a driver is involved in an accident caused by another negligent driver, their insurance company can pay for the damage to their vehicle and then seek reimbursement from the at-fault driver's insurance company. This process helps insurers manage costs and keeps premiums more stable for policyholders, as it reduces the overall financial impact on the insurer.

This understanding of subrogation is fundamental for adjusters and those involved in the insurance industry, as it outlines how responsibilities and recoveries are allocated after a loss occurs.