No, you’re not in the spelling bee again. “Subrogation” is a big word that could have even bigger implications for your wallet after a car insurance claim.

But no worries. After this quick read, you’ll be on your way to getting every dollar owed or, on the other side, saving every bit you can.

And while you’re thinking about your pockets, in less than two minutes on Insurify, you’ll find the cheap car insurance quotes that give you the protection you deserve at an affordable price.

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What is subrogation?

Think of subrogation like the similar-sounding “substitution.” It gives the not-at-fault driver’s insurance company the legal right to substitute itself for its driver or “steps into the driver’s shoes.” This way, it can recover the property damage costs or medical bills it paid for its policyholder from the at-fault driver.

How does the subrogation process work?

Usually, the insurance company pays its client’s claim directly and then tries to reimburse its cost from the at-fault party or insurers. Subrogation happens behind-the-scenes as a legal process between the insurance companies or with the individual uninsured driver.

Here’s an example. 

Sue has Progressive car insurance, and Tom has Allstate. Tom rear ends Sue, causing $10,000 of damage to her Lexus. After Sue pays her deductible, Progressive will pay to repair her car and brings a subrogation claim against Tom’s insurer, Allstate, to recover the $10,000, minus the deductible: $9,500

This example is a property damage claim, but a personal injury claim would work with the same logic and rationale (although it may involve a health insurance company).

Determination of fault after a car accident

Knowing who’s at fault clarifies how subrogation works. Here are some common scenarios:

When fault is unclear

When fault’s unclear, insurance companies will make the payout after they receive deductibles. Once the fault is decided, the not-at-fault party‘s insurance carrier will bring a subrogation claim against the other company. The at-fault party‘s company will pay to fix the damage on the other person’s car, and the at-fault driver‘s collision insurance coverage will fix their own car. 

Here’s an example.

Back to Sue and Tom: instead of a rear-end collision, suppose both were at a four-way stop and didn’t know who had the right of way, so they both went forward and crashed. With fault unclear, there will be an investigation, but Sue and Tom both need to commute to work in the meantime. So Progressive and Allstate will pay to have the vehicles fixed, hoping that the other party will be at fault. 

If one or the other is 100 percent at fault, it plays out like the rear-end example, with one party paying for all the other party’s damages. But what if both are at fault?

Both drivers are at fault

When both drivers are at fault, the process stays the same, but each will get an insurance payout and deductible back based on the percentage of fault.

Here’s an example.

The investigation finds that Sue was 30 percent at fault, and Tom was 70 percent at fault. Let’s say the total damage was $10,000. Progressive would receive a check for 70 percent of $10,000, or $7,000, and of Sue’s $1,000 deductible, she would get $700 (70 percent) back. Tom also paid a $1,000 deductible and was 30 percent not a fault, so he’ll get $300 back from Allstate.

One or both drivers are uninsured

If neither party has insurance, they’ll hire attorneys, use a small-claims court, or avoid legal action and settle out of court, but subrogation would not apply in these cases.

When only the at-fault driver has no insurance, the process can still get messy and take a lot of time. The insurer goes after the other driver on its client’s behalf. 

Here’s an example.

Let’s go back to when Tom rear-ended Sue. This time, Sue still has Progressive, but Tom has no insurance. After the accident, Progressive would pay Sue’s claim just the same, but then they’d try to recover Tom’s money, namely $10,000. If Tom pays up, it’s fine, but what if Tom can only pay a part or none? 

Partial recovery of accident claim

If the insurer can get nothing back, your car still gets fixed, but you get none of your deductible back. If the subrogation claim gets part of the money back, you get the proper percentage of your deductible back.

Here’s an example.

Tom has no insurance and has rear-ended Sue. But he settles with Progressive for the $5,000 he has in savings. Progressive would take that amount, which is 50 percent of the $10,000 in damages, and give Sue 50 percent of her $1,000 deductible back, or $500.

Subrogation waiver

A not-at-fault driver signs a subrogation waiver (or waiver of subrogation) to bar that driver’s insurer from going after the at-fault driver. Why would someone do that? In most cases, they wouldn’t. It could be the terms of a settlement that an at-fault driver or his representative will ask you to sign. They want to pay you, cut out your insurer, and bypass the subrogation process.

Your car insurance policy may have a disclaimer as part of the subrogation clause that doesn’t allow you to sign a waiver. Talk to them before you sign anything. You may hire a law firm, too.

Benefits and drawback of subrogation

Benefits of subrogation

  • Recovered deductible: Once the subrogation claim is paid and the insurer is reimbursed (or made whole), you get a refund on your deductible.
  • Faster process: The insurer pays your claim right away so you can get back on the road. 
  • Reduced hassle: You skip the legal paperwork, adjusters, and lawyers and let the insurance carrier manage it.
  • Lower premium: Insurers recover much of the payouts of their claims, reducing their expenses. They become more financially strong and save money, and they pass those savings to the consumer in lowered premiums.

Drawbacks of subrogation

The only drawback of subrogation is minor. You give up your right to change your mind and settle with the at-fault driver without the insurance companies. Settling between drivers is rare, so once an accident happens, let the insurer go to work for you. 

Contacting an attorney

You may seek a free consultation from an attorney if you’re offered a settlement and waiver of subrogation. On the other side of the equation, if you’re at-fault and uninsured, it’s a smart idea to place a phone call to a lawyer.

Following up with your insurance company

After an accident, notify your insurer at once. By the time you receive notice of subrogation, your car insurance company will most likely know. If not, let them know, then it’s often smooth sailing, apart from supplying evidence or answering questions.

Subrogation spells money back in your pocket, a faster claims process, less headache, and lower monthly premiums. Drivers who understand subrogation can avoid pitfalls, help their insurance company, and make sure they get every dollar they deserve.

Speaking of cash, in a few minutes, you can check your savings with car insurance quotes from American’s top-rated auto insurance comparison site, Insurify.

Auto Insurance Subrogation: Quick Questions

How long does subrogation take?

One benefit of subrogation is you can get your vehicle fixed after an accident right away. Your insurer will pay your claim while they go after the other driver or their insurance for the money. That said, the overall subrogation process (often in the background) is different for every claim. But, when both parties have insurance, it's relatively smooth and can take weeks to a few months, depending on the accident's details. If your insurer must go after an uninsured at-fault driver, it can take quite a while longer, with several months to a year being common.

Why would you want a waiver of subrogation?

If you're the not-at-fault driver, you most likely wouldn't. The at-fault driver would try to settle with the other driver directly and cut the insurance provider out of the picture. You should be cautious before signing a waiver and contact your insurer and possibly an attorney.

Does subrogation affect insurance premiums?

Yes, but it's complicated and a long-term effect. Subrogation allows insurers to recover much of the payouts of their claims, reducing their expenses. They become more financially sound, save money, and pass those savings to the consumer in the form of lowered premiums. For an uncomplicated way to save and see cheap insurance quotes in minutes, go to Insurify .

Browse, Compare, Discover with Insurify today.

Updated October 21, 2020

Courtney Roy is a financial and technology copywriter. He creates content that makes an actionable difference in the life of his readers. In addition to years of experience across multiple industries, Courtney has insurance licenses, a real estate license, and a degree in electrical engineering. He and his wife chase their five kids in the Phoenix, Arizona sun. You can learn more at thecopyprophet.com.