What is subrogation in the context of insurance?

Subrogation in the context of insurance refers to the right of an insurer to pursue a third party that caused an insurance loss to the insured. When an insurer pays a claim to the insured, the insurer assumes the rights of the insured to seek reimbursement from the party responsible for the damages. This process helps to ensure that the responsible party is held accountable for their actions and enables the insurer to recover some or all of the loss they covered.

Understanding subrogation is important because it emphasizes the principle of indemnity in insurance, which aims to prevent the insured from profiting from a loss and to ensure that the party at fault ultimately bears the financial responsibility. This mechanism also serves to keep premiums lower in the long run, as insurers can recover costs associated with claims through subrogation efforts.