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).
Figure 19.1 Subrogation