Definition
Subrogation
Subrogation is the insurer's right, after paying a claim, to step into the policyholder's shoes and recover the loss from the third party who caused it.
A principle of indemnity-based (general) insurance, subrogation prevents the insured from profiting twice, once from the insurer and again from the wrongdoer. After settling, say, a motor own-damage claim caused by another driver, the insurer can pursue that driver or their insurer to recoup the amount.
Subrogation applies only to indemnity contracts, not to life insurance, which is a benefit (not indemnity) contract. The policyholder must cooperate and not compromise the insurer's recovery rights, for instance by settling privately with the at-fault party.
Related terms
- Third-Party InsuranceThird-party motor insurance covers the policyholder's legal liability for injury, death or property damage caused to others, but not damage to the insured's own vehicle.
- Indemnity PrincipleThe principle of indemnity ensures an insured is restored to their pre-loss financial position but cannot profit from a claim, applying to general insurance.
- Contribution PrincipleThe principle of contribution allows insurers to share a claim proportionately when the same risk is covered by more than one indemnity policy.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.