Subrogation is not a well-known legal realm; many people outside of the insurance industry may never have even encountered the word “subrogation”. But subrogation actually plays an integral role not just within the insurance industry, but in everyday life. Still, it can be difficult to find resources that discuss subrogation topics in accessible ways, which is why Rathbone Group provides multiple modes of free education on subrogation.

In this guide, you will become familiar with the basics of the subrogation process. At the end of our discussion, you will find links to additional resources that discuss important legal topics in subrogation in greater depth.

What is Subrogation & Why Does it Matter?

At its base, subrogation simply means the right to be reimbursed. Subrogation is a process that happens after an incident that causes an insured to file a claim with their insurer. After the insurer pays the initial claim to their insured, the insurer then has the right to pursue the responsible party (or their carrier) to recover those damages.

This legal mechanism, though it plays out under the radar, serves both as industry and societal controls:

  • For the subrogating party: Being able to recover paid out claims helps insurers stay viable in the market, allowing them to offer competitive premiums while maintaining the high level of customer service their insureds expect.
  • For the insurance industry: Because most subrogation claims happen carrier-to-carrier and many will encounter each other more than once, the subrogation process encourages cooperation and procedural standardization within the industry.
  • For insureds: The carrier’s right to subrogation recovery plays a significant role in the quality of insurance policies. Without subrogation, carriers would lack the resources to offer low deductibles, broad coverage or affordable premiums.
  • For society: Subrogation serves as a deterrent for tortfeasors. Consider a negligent party who causes damages to another party, only for those damages to be covered by a third party. What incentive does that tortfeasor have to stop acting in bad faith? With subrogation, tortfeasors can be held accountable for their actions, which serves as a deterrent.

What is a Subrogation Claim?

A subrogation claim is when one party (usually an insurer) steps into the shoes of another party (their insured) to recover costs from a third party (tortfeasor) responsible for a loss. Depending on the location and circumstances, a subrogation claim may be levied in the jurisdiction in which the incident occurred, the injured party lives, or the tortfeasor lives. Often, the subrogating party will send a formal subrogation demand letter to the opposing carrier, attempting to negotiate the subrogation claim.

A subrogation claim is meant to offset the damages that were passed from the injured party to their insurer when the insurer paid out the claim. It is important to understand that, while pursuing every viable subrogation recovery claim is unquestionably valuable to an insurer, not every subrogation claim is worth the cost of pursuit. Retaining subrogation-focused legal counsel is key in every claim.

What Type of Insurance Can Benefit from Subrogation?

Subrogation is a useful tool for all types of insurance disputes. Areas of practice in subrogation law firms tend to include:

Who Has the Right to Pursue Recovery Through Subrogation?

In theory, anyone has the right to subrogation recovery. However, this is not always true in reality due to several mitigating factors. For instance, a waiver of subrogation, a missed statute of limitations, a poorly-written release, or a jurisdiction antagonistic to creditors may cause anything from minor complications in a claim to total nullification of the claim.

Some of the most common types of insurers that require subrogation case management include:

Can You Solve a Subrogation Dispute without Litigation?

Many companies feel that the time and cost of litigation outweighs the benefits of receiving a judgment award. But a subrogation settlement does not have to occur in a trial court. In fact, there are several alternate routes for dispute resolution that are less time, cost and contention:

Pre-suit Negotiations

After submitting a subrogation demand letter to the opposing party, the subrogation case manager can reach out to attempt an informal negotiation and settlement of the claim.

Mediation

In mediation, a third party is used as a go-between for both parties involved in the claim. Mediation happens outside of court, and requires an amount of cooperation on behalf of both parties. Subrogation mediation agreements are not necessarily legally binding.

Arbitration

Arbitration is a step below litigation. In arbitration, the arbitrator serves as judge, jury and mediator. They hear both sides’ arguments and make a judgment. Arbitration judgments have more veracity than mediation settlements, but are not always final.

Arbitration Forums

Arbitration Forums is a private company tailored to the insurance and subrogation industry. The way AF is structured, agreements have more finality, less contention, and cost much less time and money than a subrogation lawsuit. The other key benefit of Arbitration Forums is that the arbitration panels are comprised of people who are familiar with the specifics of insurance law, which is not typical in a civil court.

Litigation

Sometimes, litigation is necessary. While pursuing alternate avenues to recovery is often beneficial to all parties, especially with carriers who have repeated interactions, cooperation is not always in the cards. In these cases, two things are crucial to maximizing net recovery after a lawsuit: (1) filing the lawsuit as soon as possible instead of pursuing other avenues first, and (3) retaining subrogation lawyers who are known for their litigation skills.

Does Jurisdiction Matter in a Subrogation Lawsuit?

The short answer to does jurisdiction matter is: yes, always. Subrogation laws by state vary mildly to wildly. Some jurisdictions look unkindly upon creditors. Some subrogation cases involve multiple states with conflicting laws. Some states may have a scarcity of case law for a circumstance that others have legal statutes for. These are just a few of many variabilities a subrogating party encounters from one jurisdiction to another.

In subrogation, understanding the specifics of the relevant jurisdiction for a claim is necessary to maximize recovery. This requires a subrogation law firm with experienced litigators licensed across the nation, especially because many of the mistakes that functionally waive the right to subrogation are procedural technicalities like statutes of limitations or document formatting.

On Subrogation: A Free Educational Resource for Subrogation Professionals

Part of serving as an effective advocate for clients is to pursue knowledge and then share that knowledge with others in the industry. Rathbone Group’s informational series, On Subrogation, is an open resource for anyone looking to improve their subrogation strategy and skill.

On Subrogation video episodes are available on our YouTube channel, where our subrogation lawyers cover nuanced subjects in short, digestible episodes. You can also listen to our On Subrogation podcast, where we unpack those topics in greater detail. Or, for those who prefer reading, our subrogation blog contains companion articles for video and podcast episodes of On Subrogation.

To suggest a topic for a new video or podcast episode of On Subrogation, reach out at [email protected] or [email protected]. And if you have any questions about Rathbone Group’s subrogation services, contact us at [email protected].