If you have ever received an insurance payment for damages caused in an accident, you may have received a subrogation letter from your insurance company. Though subrogation is standard practice for insurance companies, many policyholders are unfamiliar with the term and may not understand what a subrogation claim is or how it affects them.
What is a Subrogation Letter?
A subrogation letter is a formal document enabling one party to pursue the rights and claims of another party against a third party. In terms of insurance, subrogation is a claim that an insurance company makes to recover money it has paid to a policyholder for damages caused by a third party. Subrogation clauses in insurance contracts allow insurance companies to assume the legal rights of the policyholder to recover damages owed by a third party. If the policyholder does not have the legal right to recover damages from the at-fault party, such as when the statute of limitations has run out, the insurance company does not have the right either.
What Are the Benefits of Subrogation?
Subrogation provides multiple benefits to insurance companies and the people they insure:
- Keeps insurance costs and premiums lower
- Reduces wait times for repairs and medical care
- Makes insurance claims easier for policyholders
- Helps insured people recover their deductibles
Lower Insurance Costs
Without the ability to pursue a subrogation claim, many insurance companies would not be able to recover money paid on insurance policies that someone else is legally obligated to pay. This would cause the cost of running an insurance company to rise and in turn result in higher premiums for customers. Additionally, it would make it more difficult for insurance companies to guard against policyholders who attempt to double dip by filing claims with both their own insurance and the at-fault party’s insurance.
Reduced Wait Times
Insurance companies must pay for damages that people they insure on liability policies are legally obligated to pay. However, it takes time for insurance companies to investigate claims to decide whether they believe that the person or business they insure is legally obligated to pay for someone’s damages. There is no guarantee that the insurance company will decide to pay for a third party’s damages, which may result in an even longer wait if the case must go to court.
Subrogation makes it easier for policyholders to use their own insurance to cover medical expenses and property damage. By doing this, policyholders can get their property replaced or repaired and get the medical care they need without waiting for the at-fault party’s insurance to make a decision.
Easier Claims Process
Many people find dealing with the insurance company of an at-fault party to be a frustrating experience. The other person’s insurance has a vested interest in deciding that the person it insures did not cause your accident. In cases where the fault is not clear, the other insurance company may not agree with you or your insurance company about who is at fault.
The option for your insurance company to pursue a subrogation claim makes it possible for you to use your insurance and let your insurance company take care of negotiating with the other insurance company. Arizona law requires insurance companies to include policyholders’ deductibles in their subrogation demands. As a result, the existence of subrogation lessens the burden of pursuing compensation for property damage from the insured person when they choose to use their own coverage.
This can be a particularly valuable option in cases where both parties share a portion of the fault. Arizona has a pure comparative negligence law. This means that if both parties contributed to the cause of an accident at all, both parties can collect damages from the other.
If both you and another person have a share of the fault in an accident and you have applicable insurance coverage, you can use your insurance to cover your damages and let your insurance company haggle with the other party’s insurance instead of having to deal with two insurance companies. This allows policyholders to settle claims faster while allowing insurance companies to work out the details behind the scenes.
How Long Does a Subrogation Claim Take?
Subrogation can take anywhere from weeks to years to complete. The length of time usually depends on the complexity of the case and whether the other party is disputing who is at fault for the accident.
How Does Subrogation Work?
Most of the time, you will not have to do anything as part of the subrogation process. However, in some cases, your insurance company may request information about the accident from you, such as a written or recorded statement, to use as evidence to support its claim.
100% At-Fault Subrogation Example
While both drivers are usually partially at fault in accidents that involve multiple vehicles, sometimes one driver is entirely to blame. For example, imagine you are stopped at a red light when a person who is not paying attention rear-ends your vehicle, causing $5,000 in damage to your car.
Your insurance company determines that the other driver is 100% at fault for the accident, but you decide to use your collision coverage to cover the damages. Your insurance company pays the $5,000 cost to repair your vehicle, less your $1,000 deductible.
Your insurance company then files a $5,000 subrogation claim with the insurance company of the at-fault driver. The at-fault driver’s insurance company agrees that its policyholder is 100% at fault. Your insurance company recovers $5,000 and sends you a check for $1,000 to cover the cost of your deductible.
Shared Fault Subrogation Example
For accidents where both drivers share a portion of the fault, insurance companies express each driver’s share as a percentage. For example, say you are approaching an intersection with a green light while driving 10 miles over the speed limit and talking on your cell phone. You don’t notice that someone driving on the cross street has run the red light and entered the intersection in front of you and you can’t slow down in time to avoid hitting them.
Your insurance company determines that the driver who ran the red light is 60% at fault and you are 40% at fault. If the accident happened in Arizona, you would be responsible for 40% of the other driver’s damages and the other driver would be responsible for 60% of your damages.
You elect to use your collision coverage to cover the $5,000 damage to your vehicle. Your insurance company pays the $5,000 repair bill less your $1,000 deductible and then files a subrogation claim for $3,000, which is 60% of the cost to repair your vehicle. The other driver’s insurance agrees that its policyholder is 60% at fault. Your insurance company receives payment from the third party’s insurance company for $3,000 and sends you a check for $600, which is 60% of your $1,000 deductible.
Partial Recovery Subrogation Example
Sometimes insurance companies don’t agree about how responsible each driver is for the damages in an accident. For example, say your insurance company thought you were 40% at fault and the other party’s insurance thought you were 50% at fault. To reach a settlement, the two insurance companies may agree to a compromise and assign you 45% of the fault.
In this case, your insurance company would only recover $2,750 of its subrogation claim. As a result, instead of sending you a check for 60% of your deductible, it would send you a check for 55% of your deductible to match the share of the fault it agreed on with the other insurance company. Partial settlements may also occur when the at-fault party does not have enough insurance to cover the full amount your insurance company paid.
How Does Subrogation Work When the At-Fault Party Does Not Have Insurance?
When the at-fault party does not have insurance, your insurance company may pursue a subrogation claim against the at-fault party directly. If your insurance company recovers a payment from the at-fault party, it may still refund your deductible. However, recovery rates from uninsured drivers are much lower than from insurance companies and in many cases, you may recover less than what the other party owes or nothing at all.
How Much Money Can My Insurance Company Get Through Subrogation?
Your insurance company has the legal right to pursue the entire amount of damages it paid to you that the at-fault party is legally obligated to pay, plus your deductible. However, there may be exceptions for some types of coverage. For example, anti-subrogation laws in Arizona prevent some health insurance plans from pursuing subrogation from personal injury settlements.
Does Your Insurance Company Have To File a Subrogation Claim?
Though insurance contracts typically give insurance companies the right to pursue subrogation, sometimes they decide not to. This may be because the company thinks there is little chance of recovery or that the cost to recover what it paid out will exceed the likely return. However, you still have the option to pursue recovery of your deductible and other uncompensated expenses directly from the at-fault party or their insurance through a lawsuit or insurance claim.
What Is a Waiver of Subrogation?
A waiver of subrogation is an agreement you make with a third party that your insurance company will not attempt to collect damages from the at-fault party on your behalf. These agreements are sometimes part of the process when people attempt to settle a claim with an at-fault party without involving their own insurance company.
Most insurance contracts require the insured to notify the insurance company before signing a waiver of subrogation. Once you sign such a waiver, your insurance company can no longer try to recover damages for you through a subrogation claim.
This can be a risk, because if you have additional expenses due to hidden damage or injuries that were not apparent before you agreed to settle, your insurance company may not pay your claim. In addition to talking to your insurance company, it may be a good idea to talk to a personal injury attorney before you agree to sign a waiver of subrogation.
Can You Sue the Other Party for Damages Paid by Your Insurance Company?
The law entitles you to recover what you have lost because of someone else’s negligence but not to make a profit from an accident. In most cases, you cannot collect compensation for the same damages twice. If you file a claim with your insurance company and then receive a settlement from the at-fault party or their insurance that includes money for damages paid by your insurance company, you may have to reimburse your insurance company.
Insurance policies typically do not cover every expense associated with a personal injury claim. For example, your insurance will typically not cover pain and suffering, and depending on which policies you purchased, you may not have coverage for other expenses, such as lost wages or the cost to rent a car. You are entitled to pursue these expenses, plus your deductible, from the at-fault party directly, even if you recovered part of your damages through insurance.
What If an Insurance Company Files a Subrogation Claim Against You?
If you have insurance, then usually you can forward the information to your insurance company and let it handle the claim. Hopefully, you have already reported the accident to your insurance company. If not, you will need to provide the details.
If you do not have insurance, you must defend the claim yourself. In this case, you may want to contact a subrogation defense attorney to assist you. Either way, do not ignore the claim. If you fail to respond, the insurance company may sue.
How Can a Personal Injury Attorney Help With a Subrogation Claim?
A subrogation claim can affect the amount of your settlement that you get to keep. In some cases, a personal injury attorney can negotiate with an insurance company to reduce the amount of the insurance company’s claim so that you get to keep more of your settlement. An attorney can also explain the subrogation process and how it may impact your claim against the at-fault party to help you maximize your recovery. If someone else’s negligence has caused your injuries and property damage, contact Sargon Law Group to request a free consultation.