What is "subrogation" in the insurance context?

In the context of insurance, subrogation is defined as the process whereby an insurance company seeks reimbursement from a responsible third party after it has paid a claim to its insured. This occurs when an insurer pays for a loss that was caused by someone else's negligence. Once the insurer compensates its policyholder for their claim, it acquires the rights to pursue the responsible party to recover the amount it paid out.

This practice is essential because it helps keep insurance costs down. By recovering funds from the responsible party, insurance companies can mitigate their losses and potentially reduce future premiums for all policyholders. Subrogation allows insurers to "step into the shoes" of their insured and pursue the appropriate party instead of just absorbing the costs of claims.

In summary, subrogation ensures that the party at fault ultimately bears the financial responsibility for the damage or loss, allowing insurance companies to recover payouts and reinforcing the principle that those who are at fault should bear the consequences of their actions.