Subrogation refers to the situation when a party pays a bill on behalf of an individual who is owed a debt from a third party. The original party can then receive the payment of the debt directly, or if the individual receives the payment of debt, he will have to provide an appropriate amount to the original party who paid his bills.
What Does That Mean?
Subrogation is a technical legal term for something that is actually a very simple idea. A good way to understand subrogation is to think how it applies to a car insurance company. For example, if you get in an accident, your insurance company will pay for a certain amount of the damages. This gives them the legal right of subrogation. If you then realize that the other driver was completely at fault and receive compensation from that driver, you will have to give some of that payment back to your insurance company, who originally paid for your damages. Alternatively, your insurance company may directly get that payment from the other driver or his insurance company.
What Is the Purpose of Subrogation?
One of the purposes of subrogation is to prevent someone from getting paid twice and taking advantage of an accident. A car insurance situation will be helpful to explain this too. You are involved in a car accident, and your insurance company covers all your damages. You then sue the other driver, and he pays you for all the damages as well. Without subrogation, you would effectively be getting paid twice and benefitting from having an accident. Because of subrogation, the compensation from the other driver will go to your insurance company, because they were the ones who actually paid the bills to repair your car. However, you will get a portion of the damages if you paid a deductible.
Subrogation also allows your insurance company to act on your behalf and recover the damages themselves. In most situations, a driver will not sue the other driver directly, and will instead let the insurance companies sort it out. Subrogation allows the insurance companies to act on behalf of both drivers, determine fault, and then make payments accordingly.
How Does Subrogation Affect Me?
Because drivers do not ordinarily determine fault and try to recover damages on their own, it doesn’t normally affect a driver, and it isn’t something you need to worry about. However, there are two exceptions
If you do choose to recover damages on your own, you should be aware of subrogation. Don’t expect your insurance company to cover your bills, and then try to pocket the personal injury compensation yourself. Your insurance company will be owed a portion of the compensation.
Sometimes the other driver’s insurance company will ask you to sign a form, and this form might include a waiver of subrogation. If it does, you should not sign the form. Because this waiver takes away your insurance company’s ability to recover damages from the other driver, your insurance company may then refuse to pay your bills at all.