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September/October  Volume 28, Number 5        

What is subrogation and how does it apply to insurance?

Subrogation in the context of insurance is the right of an insurance company to “step into the shoes” of the insured after the company has paid the loss. Subrogation entitles the insurance company to assert any rights on its own behalf that the insured may have had to recover payment from the parties that caused the loss.

The topic of subrogation is loaded with nuance and there are too many fine points to cover here. But these short explanations of how subrogation works in various types of insurance policies should be helpful.

  • In auto insurance, for example, if you have collision coverage, your insurer will pay to repair your car regardless of whether you were at fault. If you were not at fault, though, your insurer would subrogate against the party who hit your car for the damages it paid out.
  • In workers’ compensation, if a worker is injured operating a piece of machinery that malfunctions, the worker would be compensated for his injuries according the workers compensation laws of the state. But the insurance company that paid out the workers compensation would be subrogated to the worker’s right to sue the manufacturer of the malfunctioning equipment and recover its payments.
  • One of the most common appearances of subrogation is in property leases, which typically include mutual waivers of subrogation. In these clauses the landlord and tenant each agree to waive any rights of subrogation they may have against each other in the event a loss. Most insurance policies permit waivers of subrogation as long as the waiver has been agreed to before any loss occurs

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In this issue:

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Why Almost Every Business Needs Additional Insured Coverage

What is subrogation and how does it apply to insurance?



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