ContractsCounsel Logo


Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,473 reviews
Home Blog Subrogation

Jump to Section

Subrogation is the legal process by which one party steps into the shoes of another to recover a claim or seek reimbursement in any form of viable compensation. It refers to the procedure of one individual, typically an insurance provider, assuming the rights and remedies of another individual after compensating them for damage. Principally, subrogation authorizes the party who pays for the loss or damages to step into the shoes of the injured individual and seek compensation from the individual accountable for the loss. This blog post will discuss subrogation, its types, and its importance in different contexts.

Benefits of Subrogation

In the modern insurance landscape, subrogation authorizes insurance providers to recover their expenditures and minimize the financial effect of insurance claims. Below are the primary advantages of subrogation.

  • Facilitating Cost Recovery and Premium Stabilization: Cost recovery is a primary benefit of subrogation. When an insurance company successfully subrogates against a negligent third party, they can recuperate the money they paid to the insured for the claim. It helps the insurance provider balance their books and reduces the need to increase premiums for all policyholders. Ultimately, subrogation stabilizes insurance premiums, benefiting the insured in the long run by keeping coverage costs more affordable.
  • Streamlining Efficient Claims Settlements: The subrogation process streamlines claims settlements by eliminating the need for policyholders to wait for a lengthy legal process to recover their losses. When an insurance company takes on the responsibility of pursuing compensation from the liable third party, the insured can focus on recovering from the incident without being burdened by legal proceedings. This leads to quicker claims resolutions, enhancing customer satisfaction and trust in the insurer.
  • Reinforcing Deterrence: Subrogation reinforces the concept of deterrence in the insurance industry. By holding negligent parties accountable and seeking compensation for damages they caused, the subrogation process discourages reckless behavior and promotes responsible actions among individuals and entities. This deterrent effect helps reduce the frequency of accidents and losses, thereby benefiting insurance companies and policyholders.
  • Ensuring Fairness Among Policyholders: Subrogation ensures fairness among policyholders. If an insurance company could not subrogate against third parties responsible for a loss, the financial burden would fall solely on the insurance pool of that specific policyholder. By allowing insurers to seek reimbursement from negligent parties, the costs are more equitably distributed across all policyholders who contribute to the risk pool, preventing individual policyholders from shouldering an unfairly disproportionate share of the losses.
  • Reducing Insurance Fraud: The subrogation process also acts as a deterrent against insurance fraud. Some policyholders may attempt to exaggerate their losses or file fraudulent claims to gain financially from their insurance coverage. Knowing that their insurer will actively pursue recovery from negligent parties can discourage fraudulent behavior. It helps maintain the integrity of the insurance system, keeping premiums affordable for genuine policyholders.
  • Limiting the Risk of Insolvency: Subrogation helps mitigate the risk of payment default or insolvency for insurance service providers. Without the ability to recover losses from responsible third parties, insurers would bear the full financial brunt of every claim. In cases of extensive or catastrophic losses, this could lead to severe financial strain and potential bankruptcy. Subrogation safeguards insurers from such situations and ensures their financial viability during essential settlement claims.

Challenges in Subrogation

Despite its multiple benefits, subrogation can be a complex process with several challenges:

  • Multiple Parties: When multiple parties are involved in a loss, determining the responsible party and recovering costs can become complicated.
  • Coordination: Coordinating subrogation efforts between insurers or parties requires communication and collaboration.
  • Legal Complexity: Legal aspects of subrogation may vary depending on the jurisdiction and specific circumstances, making it essential to navigate the process carefully.
Meet some lawyers on our platform

Daniel R.

74 projects on CC
View Profile

Scott S.

40 projects on CC
View Profile

James H.

2 projects on CC
View Profile

Owen K.

7 projects on CC
View Profile

Types of Subrogation

Below are the various types of subrogation commonly seen in insurance and legal contexts.

  • Contractual Subrogation: Contractual subrogation arises from a written legal contract between parties, often in insurance policies or indemnification agreements. In these circumstances, the subrogee is given the right to recover expenses or damages from third parties on behalf of the subrogor. For instance, an insurance plan may comprise a provision that authorizes the insurer to subrogate against the accountable party to recover payments made to the insured due to a covered loss.
  • Equitable Subrogation: Equitable subrogation is a concept that allows a party to seek reimbursement without a specific contractual agreement. It is based on principles of fairness and preventing unjust enrichment. Equitable subrogation may occur when a party has satisfied the debt or obligation of another, even in the absence of a formal contract. Courts may apply equitable subrogation in situations where a party unintentionally paid a debt that another party was primarily responsible for, thereby stepping into the shoes of the original creditor.
  • Conventional Subrogation: Conventional subrogation refers to situations where a party voluntarily transfers their right to recover damages to another party. Unlike contractual subrogation, which arises from a written agreement, conventional subrogation can occur through informal arrangements between parties. For example, if an individual pays for damages caused by another party's negligence and the negligent party promises to reimburse them later, this would be an instance of conventional subrogation.
  • Legal Subrogation: Legal subrogation is a lawful right that authorizes an individual to seek a refund for payments made to a third party. It generally happens when the subrogee's responsibility to make the payment stems from the law, such as government aid programs, employee compensation, or healthcare. Legal subrogation allows these entities to recover their expenses from liable third parties, ensuring that public resources are utilized efficiently.
  • Subrogation of Insured's Rights: This type of subrogation concerns insurance service providers stepping into the shoes of their insured individuals to pursue recovery from third parties liable for the insured's loss. The insurance provider's subrogation rights are generally restricted to the sum they have settled on the claim. This subrogation is prevalent in property insurance claims, where the insurance provider pays the insured for damages and then seeks reimbursement from the party responsible for the loss.

Key Terms for Subrogation

  • Insured: The policyholder or individual who owns the insurance policy and is protected against financial losses by the insurance company.
  • Third Party: An entity or individual responsible for causing the insured's loss and against whom the insurer seeks recovery.
  • Loss Recovery: The process of retrieving the amount paid by the insurer to the insured for a covered loss from the liable third party.
  • Proximate Cause: The primary reason or event directly leading to the insured's loss, determining liability for subrogation purposes.
  • Subrogation Waiver: An agreement in which the insured waives their right to subrogation against a specific party, often found in contracts or leases.
  • Salvage: The process of recovering value from a damaged insured property after a claim has been paid helps offset the insurer's subrogation costs.
  • Lienholder: A party who holds a legal claim on an asset until a debt is repaid, affecting subrogation rights and insurance claim settlements.
  • Comparative Fault: A legal doctrine determining liability for a loss based on each party's fault, affecting subrogation recoveries.
  • Reimbursement: The process of repaying the insurer for claim payments made to the insured once subrogation is successful.
  • Excess Recovery: The situation in which the insurer recovers more than the amount paid to the insured for the loss, resulting in potential policyholder benefits.

Final Thoughts on Subrogation

Subrogation is an essential legal concept that safeguards the interests of insurance service providers and accountable parties while ensuring that injured parties obtain fair compensation for their losses. Understanding the complexities of subrogation is necessary for insurance companies, legal experts, and people involved in contractual associations. Moreover, by understanding the importance of subrogation, parties can seamlessly navigate the process and uphold their rights and responsibilities under the law.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

Meet some of our Lawyers

Mariah M. on ContractsCounsel
View Mariah
5.0 (1)
Member Since:
August 18, 2023

Mariah M.

Free Consultation
Indianapolis, Indiana
6 Yrs Experience
Licensed in IN
Indiana University Robert H. McKinney School of Law

McGhee at Law is a purpose-driven law firm located in Indiana. We are focused on assisting Clients with creating opportunities of advancement. Our strategy is to assist, advise and support our Clients in fulfilling their vision for their personal lives and businesses through the practice of law.

Daniel D. on ContractsCounsel
View Daniel
5.0 (2)
Member Since:
June 29, 2023

Daniel D.

Owner / Attorney
Free Consultation
Naples, Florida
5 Yrs Experience
Licensed in FL
Ave Maria School of Law

I was born and raised in Wayne, New Jersey and attended Seton Hall University, graduating cum laude. I followed my family down to Florida to attend Ave Maria School of Law where I graduated cum laude. I was admitted to the Florida Bar in 2018. During law school, I participated in the Certified Legal Internship program with the State Attorney's Office of the 20th Judicial Circuit and litigated 5 jury trials, 1 non jury trial and argued various motions before the court under the supervision of an Assistant State Attorney. I was an Assistant States Attorney for Collier County from 2018 to 2020 before moving into private practice in the areas of real estate and first party property from 2020 to 2021. As of November 2021, I started my own law practice that focuses on business planning, real estate and estate planning.

Suzanne E. on ContractsCounsel
View Suzanne
Member Since:
July 2, 2023

Suzanne E.

Attorney/Business Advisor
Free Consultation
29 Yrs Experience
Licensed in CO
Seattle University

I have been an attorney for 30 years. I am a Colorado native with many years in Alaska. I have a Bachelors in Biology, Chemistry and French, JD from Seattle University and Masters in Environmental Science and Law from Vermont Law School. I have traveled extensively, mostly in Europe, and speak several languages with more or less proficiency. I practiced law in Alaska and Colorado, much of it in remote areas but also large cities. I have taught in an environmental masters program and run large environmental nonprofits and a hot springs resort. I have worked with and run business incubators, a process I love. Empowering people to build their own futures is a passion.

Whitney S. on ContractsCounsel
View Whitney
Member Since:
June 28, 2023

Whitney S.

Free Consultation
2 Yrs Experience
Licensed in FL
Stetson College of Law

Whitney L. Smith's journey from entrepreneur to advocate is fueled by a profound understanding of the business world. With a decade of firsthand entrepreneurial experience, she entered law school driven by a mission to protect others' businesses. However, her passion for real estate law blossomed as she recognized the tremendous benefits rental property ownership offers to individuals seeking passive income and community development. Blending her deep understanding of transactional law with zealous courtroom advocacy, she empowers landlords to thrive. Born and raised in St. Petersburg, Florida, she is a proud graduate of Stetson College of Law and cherishes her role as a devoted parent to two children and a beloved pit bull companion.

Joon H. on ContractsCounsel
View Joon
Member Since:
June 28, 2023

Joon H.

Free Consultation
2 Yrs Experience
Licensed in WA
University of California, Berkeley, School of Law

I am a business lawyer working with private companies on entity formation, corporate governance, and commercial agreements. I was an in-house counsel for a unicorn startup and am currently associated with a startup boutique while operating my solo practice. I received my JD from Berkeley Law, and served in the US Navy for 5 years as a combat linguist. I am fluent in Korean.

John V. on ContractsCounsel
View John
Member Since:
June 29, 2023

John V.

Attorney / Owner
Free Consultation
Boulder, CO
25 Yrs Experience
Licensed in CO
Syracuse University School of Law

Business, Real Estate, Tax, Estate Planning and Probate attorney with over 20 years experience in private practice in Colorado. Currently owner/operator of John M. Vaughan, Attorney at Law solo practitioner located in Boulder, CO. My practice focuses on transactional matters only.

Mark M. on ContractsCounsel
View Mark
Member Since:
June 30, 2023

Mark M.

Senior Attorney
Free Consultation
Reston VA
35 Yrs Experience
Licensed in DC
Georgetown University Law Center

I have 20-plus years of experience as a corporate general counsel, for public and private corporations, domestic and international. I have acted as corporate secretary for a publicly-held corporation and have substantial experience in corporate finance, M&A, corporate governance, incorporations, corporate maintenance, complex transactions, corporate termination and restructuring, as well as numerous aspects of regulatory and financial due diligence. In my various corporate roles, I have routinely drafted complex corporate contracts and deal-related documents such as stock purchase agreements, option and warrant agreements, MSAs, SOWs, term sheets, joint venture agreements, tender agreements purchase and sale agreements, technology licensing agreements, vendor agreements, service agreements, IP and technology security agreements, NDAs, etc. and have managed from both a legal and business perspective many projects in the financial, technology, energy and venture capital fields.

Find the best lawyer for your project

Browse Lawyers Now
Learn About Contracts
See More Contracts
other helpful articles

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer


Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city