The word "subrogation" is derived from a Latin term that literally means to "step in an another person's shoes." For insurance purposes, subrogation allows the insurance company to recover money paid out for loses. An example, If you are in a car accident and the other party is deemed at fault, your insurance company can start the subrogation process by paying your damage claim. Your insurance company then can go to the other party or the other party's insurance carrier and present a demand to be reimbursed. Subrogation rights vary from state to state. Most auto insurance polices contain a clause that provides the insurer the right to pursue recovery in your place.
Insurance carriers have a subrogation language in their policies that state that an insured has an obligation to protect the company's right to recover. If you are in an automobile accident, the insurance company expects you to do the following in support of a potential subrogation claim: report the loss; secure the property; leave the property intact and not remove parts; file a police report; inform the carrier if the other party's insurance company contacts you; and obtain as much information as possible on the responsible party.
Policy Holder Rights
As a policy holder, you also have rights under subrogation. You have every right to expect the company to pay the full value of the claim regardless of whether the company feels it can recover from the responsible party. You also have the right to ask your insurance company to include, when it presents the claim to the other party, any deductible or out-of-pocket expense you might have incurred.
First in Line
Insurance companies also have a right to expect to be reimbursed first from any money collected by you or your attorney. An example would be if you suffer a loss and the loss is covered by the other party. You present a claim for $5,000 (paid by your carrier) for your car and $10,000 for medical bills and pain and suffering. The total amount of the claim is $15,000. The other party agrees to pay only $7,000. If you accept this settlement without consulting your insurance company, you will have to turn over the $5,000 covered by your insurance company and any amount your company paid for your bills. This may leave you with no recovery for pain and suffering.
The representation clause allows for you insurance company to sue on your behalf to recovery all amounts paid out and any reasonable out of pocket expenses you occurred. In the aforementioned example, you could refuse the the settlement offer and your insurance company would then file suit to recover the full amount on your behalf. You are expected to cooperate in any litigation related to the subrogation claim.
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