What is Subrogation?

The legal doctrine of subrogation is invoked most often in the insurance industry.  It deals with the insurance company’s right to go after and recover from the party who caused a loss — after the insurer has paid out on its policy with its insured.  An example is illustrative.

Suppose a roofer replacing an asphalt roof on an office building accidentally starts a fire on the roof with the hot asphalt.  The building is damaged to the tune of $250,000.  The building owner’s insurer pays the owner $250,000 (less deductible, of course!) and the building is repaired.  Under its policy, the insurer now has the right to go after the roofer for the amount of the damage, on the theory that the roofer’s negligence caused the fire.  The insurer has the right of subrogation which allows it to stand in the shoes of its insured (who suffered the loss) and pursue a claim against the roofer (who caused the loss).

Subrogation allows insurance companies and other indemnitors to recovery their loss if they can prove who caused the underlying damage, assuming it was not an “Act of God.”  Many insurance claims, such as storm damage, have no subrogation potential because there is no third party to blame for the loss.

Note also that the subrogation “chain” can get longer.  In our example, if the roofer can show that the fire was started by a defective torch, the torch manufacturer (and its insurer) might ultimately be on the hook for the loss.

– Kevin Palmer

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