So you were in an auto accident. Luckily nobody was hurt but your car is smashed. And… it wasn’t your fault so that’s good too. Should you pursue your claim through your carrier or the at-fault party’s insurance? Not always an easy answer so let’s discuss subrogation.
Subrogation (besides being a funny sounding word) is when an insurance company pays for covered damages, then tries to collect the cost of the loss from the at-fault party or his/her insurance. Auto accidents are the most common type of subrogation claim. In the above accident, you may have a deductible if you go through your carrier but you also may end up getting paid much quicker, have coverage for a rental car that can be direct billed, etc. In cases like this you may just pursue the claim through your carrier and then after they pay the claim, they then pursue the at-fault party and their insurance (hopefully they have insurance).
In this sense you end up paying your deductible up front but when your carrier gets the money back from the at-fault party’s insurance, they should then reimburse the deductible proportionately. In CA all money received through subrogation goes first to the policy holder and then whatever is left over your insurance company reimburses themselves. Other state though are different and allow carriers to reimburse a percentage of the deductible to match the percentage of the recovery. So if you have a accident that wasn’t your fault and cost $6,000 in damages, you’ll get paid $5,000 after your $1,000 deductible. Your carrier will then pursue the at-fault party for the full $6,000. Sometimes though due to depreciation, policy limits or other reasons, a full recovery isn’t made. So if your insurance company only recovered 70% of the loss, in some states you’d only get $700 back from your $1,000 deductible… even though the accident wasn’t your fault. Yea that pretty much sucks but it happens.
But the worst case is when there is a responsible party but recovery isn’t possible. Maybe they don’t have insurance for example or maybe even the at fault party can’t be determined such as a hit and run. You have a $1,000 deductible that you’re going to be out and not much you can do about it. If the person that hit you has no insurance, you can still file a lawsuit or small claims action against them and you’ll likely win but if they have no assets… what good is a judgement you can’t collect on? The bottom line is that when choosing a deductible on your policy, you need to be aware that if you have a claim, even when it’s not your fault, you could be out your deductible.
Insurance companies LOVE subrogation because it’s basically free money coming back to help the bottom line. The downside is that often times responsible parties can’t be identified (hit and run for example), have no assets to collect upon etc. Sometimes a party could be known and have insurance but there is disputed liability as it’s not fully known who is at fault in a accident. In cases like this your insurance company, even against your wishes, may decide to not pursue suborgation if the cost and time isn’t deemed worth it. It sucks if you’re pretty sure the other guy was at fault… but it happens.
For huge losses in the hundreds of thousands or millions of dollars, especially when liability is not clear, lawyers are often retained to help in the subrogation effort. It’s not uncommon for insurance companies to basically pursue litigation against the other but the cost of litigation like any matter, needs to be considered against the possible reward if the case is won.
At the end of the day, subrogation isn’t something you need to really worry about but your insurance company takes very seriously. Just know that if you suffer a loss and someone else is truly responsible, your insurance company likely isn’t going to leave that potential money on the table. They will pursue it and and if they are successful, you should get some if not all of your deductible back.
Any questions or comments, please do not hesitate to contact me.