After paying a claim, the insurer often steps into the insured’s shoes. Subrogation is the insurer’s right to pursue recovery from a third party who caused the loss, up to the amount the insurer has paid. The insured must not prejudice that right.

Typical examples include auto insurers recovering from at-fault drivers’ carriers and property insurers pursuing negligent contractors. The policy usually requires the insured to cooperate and to transfer rights of recovery after payment. Any recovery is applied first to reimburse the insurer, with residual amounts sometimes returned to the insured.

Effective subrogation reduces net loss costs and can improve loss ratios. It also reinforces accountability for those who cause damage. Waiver-of-subrogation endorsements, common in construction contracts, limit the insurer’s recovery rights and are priced accordingly.

• Insurer’s right to recover from at-fault third parties
• Arises after payment of a covered claim
• Requires insured’s cooperation
• Reduces net cost of claims