Subrogation

Figure 19.1 Subrogation 

 

Subrogation is the substitution of one person for another in pursuit of a legal claim. When an insured is entitled to recover under a policy for property damage, the insurer is said to be subrogated to the insured’s right to sue any third party who caused the damage. For example, a wrecking company negligently destroys an insured’s home, mistaking it for the building it was hired to tear down. The insured has a cause of action against the wrecking company. If the insured chooses instead to collect against a homeowner’s policy, the insurance company may sue the wrecking company in the insured’s place to recover the sum it was obligated to pay out under the policy (see Figure 19.1).