What is "subrogation" in insurance?

Subrogation in insurance refers to the process by which an insurer, after paying a claim to the insured, seeks to recover the amount of that payment from the party that caused the loss. This is significant as it allows the insurer to maintain its financial stability by attempting to recover costs that were incurred due to someone else's actions. When an insured party suffers a loss due to the negligence or wrongful act of another party, the insurer compensates the insured for their loss and then has the right to pursue the responsible third party for reimbursement.

This mechanism serves both to protect the insurance company from excessive costs and to ensure that the responsible party is held accountable for their actions, thereby helping to prevent the insured from needing to pay for damages that were not their fault. Therefore, the definition of subrogation aligns with recovering costs from a third party after compensating the insured.