Subrogation refers to the right of an insurance company to recover their loss from an at-fault third party after paying money to an insured to cover a claim. Insurance policies contain subrogation sections, which spell out the rights and responsibilities of the insurance company and the insured. Businesses need to consider several aspects of subrogation with respect to their insurance policies.
How does subrogation work?
An insurance company’s subrogation rights take effect after you file a claim and the insurance company pays you for your loss. The insurance company then has the right to step in your shoes to initiate an action to seek recovery from a third party who is at fault. For instance, if one of your company’s drivers is involved in an automobile accident and the other driver is at fault, the insurance company will pay to fix your vehicle and then pursue the other driver’s insurance company to recover the loss. Subrogation allows your company car to be fixed immediately, without waiting for the insurance company’s dispute with the third party to be resolved.
What are the insured’s rights and responsibilities?
Most policies will require that you, as the insured, fully cooperate in any subrogation proceedings, such as attending hearings and trials and gathering and giving evidence to assist the insurance company in recovering its loss.
If you paid a deductible and/or had any provable uninsured loss, the insurance company may be able to recover these for you in the subrogation proceedings. Many policies state that any recovery, (after expenses incurred in the proceedings are deducted), shall accrue to the insured in the proportion that the deductible amount and/or any provable uninsured loss amount bears to the entire provable loss amount.
Your insurance company may also require that you assign or transfer all rights of recovery you may have against any party for loss to the extent of the insurance company’s payment.
Waivers of Subrogation
Some business contracts contain subrogation waiver clauses. Particularly common in construction contracts and real estate leases, these provisions prevent insurance companies that have paid for a loss from suing other parties that may have caused the loss.
When such a waiver is in place, your insurance company will be assuming greater risk and therefore may charge a higher premium if your contracts contain such waivers. It is also possible that your insurance policy will contain a clause stating that if you or any of your subcontractors enter into any agreement to waive, compromise, settle or otherwise impair the insurance company’s subrogation rights against a third party, the insurance company may deduct from your payment a sum equal to the maximum expected recovery that was lost due to your action.
Before signing a contract that requires you to waive subrogation rights, it is important to find out whether the contract will invalidate or compromise your insurance coverage.
If you are involved in a dispute with your insurance company, give us a call. We have the expertise, experience, and tenacity to make insurance companies keep their promises to you and your businesses.