Auto Insurance: Claims and the Right of Subrogation

Carol George By Carol George, 7th Jul 2014 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Money>Insurance

Subrogation is a concept that is well known insurance claims professionals. Most drivers don't know what it means until they are involved in an accident and they are at fault.

Essentially, it's a process that's based on the right of an insurance company to collect money from the person who caused an insured's damages.

What is Subrogation?

Subrogation is a legal right that allows an insurance company to collect from a responsible party any damages paid on behalf of their insured. It can involve an auto accident or any other insured occurrence. You will find subrogation defined by as well as legal sites, but those resources tend to make it sound complicated when it's actually pretty simple.

Subrogation reinforces the concept of indemnity, a common thread throughout the insurance industry that encourages putting a person back the way they were before damage occurred. Under indemnity, a damaged person is made whole but not enriched.

Subrogation preserves that process. If one person causes damage to another, the damaged party can collect directly from the responsible person's insurance company or from his own insurance company, but not from both. If his own insurance company pays for the damages, the damaged person assigns his right of recovery to his insurance company and they will collect from the person ultimately responsible.

A John Doe Subrogation Tale

John Doe was stopped at a traffic light when another driver struck his car in the rear and left the scene. A witness got a description of the car and a license plate number; and the police were trying to find the other driver.

Of course that person should pay for any financial loss John sustained as a result of the accident; but the police officer told him it might take some time to find him. John realized the most efficient alternative was to file a collision claim through his own insurance company.

Once the repairs were made and he was on the road again, John put the incident behind him. His insurance company had paid for the repairs, putting things back the way they were before the accident. John was happy; but the insurance company's job was just beginning.

Sally Adjuster, who investigated John's accident for his insurance company, learned from the police report that the officer had tracked down the hit and run driver. His name was Joe Shmo.

Since Sally had already paid John Doe, the insurance company's right of subrogation allowed them to collect the money back from Schmo, who caused the damage in the first place. Satisfied that she had completed the investigation, Sally turned the claim file over to the subrogation unit.

The Subrogation Process

When the subrogation unit received Sally Adjuster's closed claim file they sent a letter to Joe Shmo explaining their right to recover the money paid out to their insured. As a courtesy, they also asked for John's deductible. Their letter asked Joe to turn the claim over to his auto liability carrier or call to set up payment arrangements if he didn't have insurance at the time of the accident.

Joe Shmo did have insurance. A simple ending to this story would have had his insurance company getting the claim report, accepting liability and paying the money back to John Doe's insurance company; but subrogation rarely goes that smoothly.

In Joe Shmo's case, since he left the scene and didn't report the claim, his insurance company considered denying coverage for his failure to comply with policy reporting requirements, as well as other conditions. They reserved their rights and decided to investigate the accident for themselves.

Insurance Intercompany Arbitration

Joe Shmo's insurance company conducted an investigation; but his version of the accident was slightly different. He said it was he who had stopped at the light and that John Doe backed into the front of his car. Joe said that he left the scene in fear of his life because Doe threatened to kill him.

True or not, that's the story he told the investigating police officer when they located him. He was willing to sign a statement attesting to the fact. It was Doe's word against Shmo's when he went to court and he was successful in fighting a traffic citation. Eventually his insurance company accepted coverage but denied liability and denied the subrogation claim for Doe's damages.

John Doe's insurance company had a number of options to exercise. Both insurance companies were signatories to Intercompany Arbitration, a compulsory agreement that required that they submit certain subrogation claim disputes to a panel who would decide the outcome.

Some companies who do not participate in intercompany arbitration work with other local arbiters or professional mediation services where claim representatives meet for facilitated negotiation. Arbitration and mediation are great ideas that work unless one of the parties has no insurance.

What if Joe Shmo Had No Insurance?

If Joe Shmo had no liability insurance, the subrogation case against him would not go away; it would simply head in a different direction.

State Compliance

One of the first things a subrogation unit does is make certain their own insured complied with state financial responsibility laws. In many states, the insured would have already completed a state-required form with the details of the accident. The insurance company would have signed the form, verified liability insurance, and forwarded it to the Bureau of Motor Vehicles.

License suspension

Doe's state filing would have triggered Joe Shmo's required compliance as well. If he didn't show proof of financial responsibility--usually insurance or a personal bond--his license would have been suspended temporarily.

A suspended license gives a subrogation unit the power to force the other party to pay. Typically, once they were certain that Joe had no insurance at the time of the accident, they would try to get him to agree to a payment plan.


If Joe Shmo was uninsured and refused to make payment arrangements, or if he didn't make scheduled payments once an agreement was made, Doe's insurance company would likely file a subrogation lawsuit against him. They would try to get a judgment in the amount of the damages and deductible, plus interest and legal fees.

When they filed a copy of the judgment decree or similar court document with the state bureau of motor vehicles, Joe's license would be suspended indefinitely. That suspension would usually remain in effect until he satisfied the judgment.

Even when both parties have insurance, subrogation can still end in a lawsuit. If compromise, arbitration or mediation efforts fail, one insurance company may file a subrogation lawsuit against the other, often naming their insured's as plaintiff and defendant.

Whether insured or uninsured, a lawsuit is the least desirable subrogation option for all parties. Some insurance companies have attorneys on staff to handle subrogation suits more economically. Still the expense of, fees, court costs and time spent often exceed the damages paid. Besides that, lawsuits often take years until they are resolved.

Statute of limitations laws vary from state to state, but in most cases, after a judgment is taken, the only way Shmo could avoid owing Doe's subrogation claim would be to discharge it through bankruptcy.


Auto Accident, Auto Insurance, Claims, Subrogation

Meet the author

author avatar Carol George
I've been writing content for online websites since 2008. I have a background in insurance claim litigation and liability. I also taught jewelry making and crafts. I will write about these and more.

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