Subrogation
Subrogation in the context of insurance is the process where an insurance company steps into the shoes of the insured to recover the amount it has paid for a claim from a third party who may have caused the loss or damage. This helps the insurance company to offset the costs incurred by paying the claim.
Example #1
For example, if your business property is damaged due to a faulty product that you purchased, your property insurance provider pays for the damages. The insurance company can then seek reimbursement from the manufacturer of the faulty product through subrogation to recover the costs incurred in paying your claim.
Misuse
An example of misuse of subrogation could be when an insurance company tries to recover costs from a third party by unfairly shifting the burden onto the insured. It's important to protect against misuse of subrogation to ensure that the insured party is not unfairly held responsible for the actions of others, especially when they are not at fault.
Benefits
The benefit of subrogation is that it can help keep insurance premiums lower for consumers. By recovering costs from responsible third parties, insurance companies can reduce their overall claim payouts, which in turn can lead to more stable and affordable premiums for policyholders.
Conclusion
Subrogation, when used appropriately, can help ensure that the party responsible for causing a loss or damage bears the financial burden, relieving the insured from additional costs. It plays a role in maintaining fairness and accountability in the insurance industry.