What is subrogation in the context of insurance?

Subrogation in the context of insurance refers to the right of an insurance company to pursue a third party that is responsible for a loss after the insurer has compensated the insured for that loss. When an insurer pays out a claim, they essentially step into the shoes of the insured and gain the legal right to seek reimbursement from the party that caused the damage or loss. This process ensures that the insurer can recapture the costs associated with the claim, which helps manage losses and keep premiums in check for policyholders.

This principle is fundamental in the insurance industry because it encourages accountability among parties responsible for damages. By exercising the right of subrogation, insurers can recover funds, which ultimately helps in maintaining lower costs for their clients and promotes fairness by holding the responsible party accountable for their actions.