First, let’s define subrogation: subrogation is one of the fundamental concepts in insurance and it means to “place oneself into the shoes of another” and assume their legal rights. In a practical sense, this means that, after paying for a claim, the insurance company can “step into the shoes” of the insured and bring a lawsuit in the insured’s name against the responsible party in order to recover all amounts incurred. Without the right of subrogation, insurance companies would have to charge higher premiums in order to operate effectively.
An insurance company’s decision to subrogate against the responsible party after paying a claim is usually out of the insured’s control. This leads to some interesting situations, such as when an insured, via the insurer, ends up “suing” a friend; much to their surprise!
To avoid these possibilities, an insured may opt to purchase a waiver of subrogation endorsement for their policy. A waiver of subrogation prevents or limits an insurer’s ability to subrogate against the responsible party. This option comes at a price: because the insurance company cannot recover their losses, they will typically charge a higher premium.
However, even outside of the waiver of subrogation, an insurer will not subrogate fellow named insureds or anyone with insurable interest on the insurance contract.
This article was originally written for Insuranceopedia