What is subrogation?
When an insurer pays a claim for a loss that someone else caused, it can step into the insured's position and seek reimbursement from the responsible party or that party's insurer. The NAIC's glossary describes subrogation as the insurer's legal right to bring a liability suit against a third party who caused losses to the insured, so the insurer can recover what it paid. Many recoveries settle by demand and negotiation, or through inter-company arbitration, before a suit is needed.
How does subrogation work?
- Spot the recovery early. Third-party fault often shows up at first notice of loss, and evidence is easier to preserve at that point.
- Pay the claim to the insured under the policy.
- Put the responsible party and its insurer on notice, and preserve evidence.
- Send a demand for reimbursement, which usually includes the insured's deductible.
- Resolve the demand by negotiation, arbitration, or litigation, then return the insured's share.
What is a waiver of subrogation?
A waiver of subrogation is a contract term, or a policy endorsement that carries out that term, in which the policyholder gives up the insurer's right to pursue a named party. It appears often in construction contracts and commercial leases, where the parties agree not to sue each other over insured losses. Insurers usually add the waiver by endorsement, and some charge for it. A claim handler checks for a waiver before sending a demand.
Why does subrogation affect claims quality?
A recovery nobody pursued is one of the common sources of claims leakage. Recovery rights also expire. Each state sets its own limitation periods, so the file needs a recovery plan while the claim is still open, not after it closes. Subrogation is one stage of the claims lifecycle.
Ely Audit reviews whether subrogation was considered and pursued, as one of its audit use cases.
