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Updated: May 20, 2024

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What Is Subrogation?

Subrogation can be best described as a substitution. It refers to the legal right of an insurance company to pursue a third party who caused damages to a policyholder’s property or car. The insurer serves as the policyholder’s substitute to claim money from the at-fault party. With this, the insurance company can be reimbursed for the claim amount they paid the policyholder.

Subrogation Fast Facts


Subrogation helps protect both the insured and the insurance company from paying for damages or losses caused by another party.

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Subrogation allows insurance carriers to legally pursue a party at-fault for an insurance loss to a policyholder.

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Subrogation is typically completed by the insurance provider after settling the policyholder’s claim.

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Subrogation is detailed in the indemnity clause that describes the processes and obligations for claim compensation.

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While applicable in various types of insurance, including homeowners and healthcare policies, subrogation is most common in car insurance policies.

Why Trust MoneyGeek? MoneyGeek performed research and used an extensive and multi-step editorial process that includes fact-checking to ensure accuracy. We also consulted with insurance industry experts to gather insights and actionable advice for readers.

How Does Subrogation Work?

Three parties are involved in subrogation. This includes the insurance carrier, policyholder and the third party who caused the damages or losses.

The process starts after the policyholder applies for claims for the cost of damages or losses due to an accident caused by the third party. The insurance carrier settles this claim if the policyholder is cleared of fault.

After that, the insurance company can begin the process of seeking reimbursement for the claim amount. While subrogation gives the insurance company a legal right to pursue a third party, the insurer must inform the policyholder first before entering subrogation.

A simplified diagram of how subrogation works.

Subrogation is the transferring of rights of the insured claimant to the insurance provider to pursue a third party for the damages they caused. Thus, the insurance company stands in the place of the policyholder. This is also known as “stepping into the insured’s shoes.”

The Subrogation Process

Subrogation is part of the indemnity clause. This is a contract between the insurance company and policyholder that details the procedures and compensation obligations of the claim amount against damages or losses to the insured property or vehicle.

The following step-by-step process is typically involved in subrogation:

You're involved in an accident.

It’s important to remember subrogation can only be used if there are damages or losses due an accident.

You report the incident to your insurance company.

After the accident, report it to your insurance carrier as soon as possible. File a claim for the damages.

Your insurance company investigates.

Once the insurance company receives your application for a claim, they would investigate the incident to determine whether the incident is covered by your policy.

Your insurance company covers necessary expenses.

If the investigation finds the incident is covered, the insurance company covers expenses (medical/repair). If the insurance carrier finds you eligible for a claim, they will cover the necessary expenses that are covered by your insurance.

Subrogation may be filed.

If you’re not at fault or only partially at fault for the incident, the insurer may file a subrogation. The insurer must inform you of this.

Your insurance company files for recompense.

Insurance company files for recompense from the negligent party or their insurance company. Your insurer will pursue the negligent party or their insurer for reimbursement of the claim amount. They may also seek payment for your deductible.

An illustration of two drivers on their phones after getting into a car wreck.

Subrogation in Auto Insurance

Subrogation is used in different types of insurance, such as homeowners and healthcare policies. However, it is most common in auto insurance.

A car insurance company can opt to file a subrogation claim after paying out a policyholder’s claim. However, this does not necessarily mean that insurance companies will do this for all claims wherein the policyholder is not-at-fault. The eligibility of claims and expenses for subrogation may vary depending on state laws. Based on the settlement, you may also get a refund for your deductible.

If the third party has insurance, your insurer will negotiate with the other company.

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Subrogation depends on the extent to which the policyholder is not at-fault for the accident. Insurers can only pursue the other party if you’re either not at-fault or only partially at-fault. If the negligent party has insurance, your insurance company will file a subrogation claim with the other insurer. If the at-fault party is uninsured, your insurance provider will try to recover the amount they paid out directly from the negligent party.

Subrogation In Action

Determining fault in a car accident is important, especially when it comes to subrogation. Generally, your insurance company can only pursue a case if you are not at-fault or only partially at-fault for the incident. Depending on the situation, the insurer may get full or partial reimbursement.

Here are some examples to help you better understand what subrogation means.

The Policyholder Is Not At-fault

Let us say Driver A and Driver B were in a car accident and exchanged insurance information.

Because of this incident, Driver A needs to pay a total of $2,500 to repair all damages. After filing a claim, Driver A’s insurance provider paid out the full cost of the repair minus a $500 car insurance deductible. That means Driver A got $2,000.

After an investigation, the insurance provider found out that Driver B was the one responsible for the accident as it rear-ends Driver A. Therefore, the insurer decided to recoup the claim amount from Driver B. The company will file a subrogation claim against Driver B’s insurance company and represent the interests of Driver A to recover its losses due to Driver B’s negligence.

If the insurance company gets full compensation, they will get the $2,500. They will then give the $500 back to Driver A for his deductible.

The Policyholder Is Partially At-fault

Now, let us say that Driver A and Driver B were both at-fault for the collision and share equal responsibility. Driver A’s insurance company will pay out $2,000 ($2,500 cost minus the $500 deductible).

Then, the insurance company will file a subrogation claim to Driver B’s insurance company for $1,250. That reflects half the repair costs because Driver A is partially at-fault in the accident. If there are no issues with the case, the other insurance company will pay the $1,250. Driver A will also receive $250, which is half of his deductible payment.

Waiver of Subrogation

In some cases, subrogation is waived. When that happens, the insurance company can’t pursue the negligent party or the negligent party’s insurance company.

A waiver of subrogation is often involved in settlements. It’s typically part of a deal between the at-fault party or their insurance company and the affected party. In this case, the affected party accepts to settle for a certain amount.

Signing the waiver means the insured party waives the right of their insurer to seek compensation for losses from the at-fault party.

Subrogation FAQs

Subrogation can serve as a protection for both the insured and the insurance company, but it’s not always applicable. We’ve provided some frequently asked questions (FAQs) to help you better understand the concept.

What is subrogation in insurance?
What is a waiver of subrogation?
What is a subrogation claim?
What is a subrogation clause?
How long does subrogation take?
How to negotiate subrogation claims?

Expert Insights

While subrogation claims are handled by the insurance company, knowing how it works can help protect you in the case of an incident. MoneyGeek asked industry experts to share their insights to help you better understand what subrogation in insurance details.

  1. When is it wise to waive subrogation?
  2. If you are the at-fault party, how can you deal with a subrogation claim?
  3. Are there differences in subrogation done in auto, home and other insurance areas?
  4. What happens if the insurance provider fails to claim compensation via subrogation?
Matthew Davis
Matthew DavisPresident and CEO at GDI Insurance Agency, Inc.
Linda Chavez
Linda ChavezFounder & CEO of Seniors Life Insurance Finder

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About Nathan Paulus

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Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.