Subrogation is a niche field of law. Not just niche in the way that the public doesn’t understand it, but so niche that most legal professionals don’t, either. This is because subrogation is specific to the insurance industry. While the details of any subrogation claim are complex and nuanced, the general subrogation process is pretty straightforward.
Motor vehicle subrogation is one of the most common claims any insurance lawyer deals with, and so also one of the most common subrogation letters policyholders receive in the process. So, let’s take a look at the lifecycle of an insurance subrogation claim using a hypothetical insured automotive claim.
A Step-by-Step Guide to the Subrogation Process
Case: Say there was an automotive accident where the insured was T-boned at an intersection when another car ran a red light. The resulting damage included both property and personal injury.
Step 1: Accident & Initial Insurance Claims
- The accident occurs, and a police report is taken.
- Both parties report the incident to their respective carriers.
- The insured files a claim to cover the damage to their car as well as medical expenses.
- The insured’s carrier begins the claim adjustment process, which includes:
- verifying what’s covered under the policy,
- investigating the accident to confirm causation and fault, and
- assessing/quantifying the damages.
Step 2: Insurance Payout & Subrogation Rights
- The carrier pays out the claim to the insured, as it was covered under their policy.
- Once the insured has been compensated, the insurer gains the right to subrogation.
- This is where the carrier takes the role of the insured to pursue the responsible party or their carrier for the claim they paid out to their insured.
Step 3: Preparing & Initiating a Subrogation Claim
- The carrier launches a subrogation investigation that reviews, analyzes and builds on the initial investigation done by the insurance adjuster. This can include:
- reviewing the police reports and associated documentation,
- re-interviewing witnesses and reviewing digital, photo, and video evidence, and
- reviewing all medical records and auto shop bills.
- The carrier notifies both their insured and the tortfeasor/tortfeasor’s carrier of their intent to pursue the claim via subrogation.
- The carrier sends a formal subrogation demand letter to the opposing party, detailing:
- damages suffered by the insured,
- payments made by the carrier to their insured, and
- evidence establishing the opposing party’s liability.
Step 4a: Pre-Suit Negotiation & Resolution
The opposing party responds to the subrogation demand. The dispute then develops in one or more of the following ways:
- Negotiation: If liability is extremely clear, like in a red light case, the opposing carrier may be open to paying the entire subrogation claim via informal negotiations.
- Mediation: While mediations are not always binding, mediation adds a level of formality and gravity to the negotiation process. In a claim with the potential for contention, subrogation settlement through mediation allows direct negotiation using a neutral third party as a proxy.
- Arbitration: Arbitration can be expensive or affordable, depending on the forum. Arbitration Forums, specifically, offers subrogating insurers a forum with claims adjusters acting as arbitrators who are knowledgeable in this little-known area of law.
- Because parties using AF have already agreed to member terms, they also agree to abide by the panel’s determination. If a carrier is not paying the arbitration award, enforcement of the award can occur through the subrogation litigation process.
If these routes to alternate dispute resolution don’t work, and/or the carrier opted out of the options, the subrogation claim will proceed to litigation in civil court.
Step 4b: Subrogation Lawsuit & Litigation
Whether by initial client direction or by failure to obtain an acceptable pre-suit subrogation recovery, some insurance subrogation claims proceed to litigation. The litigation process includes:
- The carrier files a lawsuit against the opposing party (tortfeasor or their carrier).
- In court, the subrogating carrier has to prove by a preponderance of evidence:
- the opposing party’s liability (i.e. breach of duty, negligence, malintent),
- the damages incurred as a result of the opposing party’s actions, and
- the carrier’s payout of the insured’s claim.
- Most subrogation litigation is settled before trial, but if the case proceeds to trial, a judge or jury will render a judgment.
- The opposing party has an opportunity to appeal a judgment.
Step 5: Settlement & Insurance Payout Recovery
Recovery and distribution of funds is the last step in the subrogation process. In insured auto subrogation with clear fault, the opposing party will likely comply and send the payment within the 30-day deadline. However, other factors may apply to a subrogation settlement:
- The opposing party may file an appeal, causing a stay of the award.
- The opposing party may refuse to comply with the judgment, requiring the carrier to take further action to recover the award.
- The award may be adjusted for other circumstances, including split between multiple parties involved or out-of-pocket and deductibles paid to the insured.
Visit Rathbone Group’s Education page for links to our YouTube channel and podcast library of On Subrogation episodes, where our attorneys discuss these kinds of complexities in the subrogation process.
Important Considerations in the Subrogation Process
It’s important to make clear that no subrogation case is actually this simple. There are many variations in insurance subrogation law by state, as well as doctrines and statutes that courts view differently depending on jurisdiction. Personal injury subrogation is often complex, and underinsured or UIM subrogation are often more complicated than an insured auto claim.
Subrogation Law firms serve as resources for carriers who need comprehensive claims management for potential subrogation claims. The nuances of this already niche field of law require focused legal experience and an understanding of jurisdictional complications.
Benefits of Subrogation & Why Subrogation Education Matters
Rathbone Group is committed to providing free subrogation education to insurance professionals to help clients maximize subrogation recovery in every claim with potential. Insurers’ right to subrogation serves as a balance that benefits not just the carrier, but their insureds as well.
If a carrier is able to consistently recover losses paid out in claims where the responsible party was clearly negligent, they can continue to offer their insureds competitive premiums, policies with great coverage, and a seamless claims process. Subrogation law firms like Rathbone Group are the support system that manages these claims and helps insurers remain viable by minimizing losses with subrogation.
In the bigger picture, subrogation serves as a deterrent for reckless and tortious behavior. If there was no insurer right to subrogation recovery, tortfeasors would get off scot-free. But since a carrier can compensate their insured and then pursue the responsible party for those losses, tortfeasors are held responsible for their actions.
So even though most may never have heard the word “subrogation” before, if you hold any insurance policies, it’s benefitted you. That’s why public education on subrogation is important; a better understanding of the subrogation process benefits all parties involved in an insurance claim… except the tortfeasor, of course.