What Is Subrogation and How Does It Affect You?

You purchase insurance to transfer risk from your operations to an insurance company. When you have damage to property or injuries to people, you file a claim so that the insurance company pays the claim. What if somebody else caused or is responsible for the damage or injury? How would you feel if an uninsured person drove their boat into one of your docks or rental boats creating severe damage or injuries? I am sure you would want that person held responsible for the damages or injuries. This is where subrogation comes into play.

Subrogation means that your insurance company sues for reimbursement of claim payments when another party or company is responsible for the damages or injury. The lawsuit could be against an individual or company.

Anytime you have a claim, and your insurance company pays for property damages or injuries to your employees or a third party, it is in your interest to examine whether a third party or company is responsible for the damages or injuries. This is because any claims you have are kept on a historical record by the insurance company and if you have a number of claims and/or very expensive claims, you will be impacted in a couple of ways including higher annual insurance premiums and fewer insurance companies willing to insure your business. If there are circumstances that you are aware of that would lead to subrogation opportunity, please bring them to my attention so that we can bring them to your insurance company’s attention. If your insurance company can subrogate and recoup the cost of the claim payment they paid on your behalf, the claim you had will not impact your future insurability. This will help to keep your insurance premium as low as possible and allow you to purchase insurance from the very best companies.

Examples of subrogation opportunities include but are not limited to:

1. Equipment or tool failure causing property damage or injury
2. Any damage to your property caused by a third party
3. Any employee injuries caused by a third party or equipment/tool failure
4. Any auto accident where someone else was at fault or due to mechanical failure
5. Any boat accident causing damage to your boat or injuries to your employee(s)

If any of these things occur, I would want contact info of any person involved, and if a piece of equipment or tool fails, I would need the company name of the manufacturer, the model and serial number of the piece of equipment or tool.

If a claim payment is small, usually under $5,000 or so, an insurance company generally won’t subrogate because it costs them more than it’s worth to go to court. Each company has their own guidelines. However, as claim expenses grow, your insurance company will definitely consider subrogating and that is definitely in your interest so keep your eyes open for any opportunities such as those listed above.

Ask yourself if any other agent has brought this to your attention in the past? Ask yourself if you have had any claims in the past where subrogation would have been possible? I am always interested in hearing about claim stories and how the claim was handled by the insurance company so if you have any good stories, please comment on this blog.

Doug Timmons, CIC, CMIP

Marine and Resort Insurance Specialist

Commercial Risk Service