What Is a Subrogation Claim?When you submit an insurance claim after a property damage event, the insurance company covers the costs to make you whole, whether that means fixing the damage or replacing your damaged property. For example, if you were in a minor car accident, the insurance company will pay for the cost of whatever repairs your vehicle needs. If you were in a major collision, the insurance company might say your car is a total loss and give you money to replace it. Insurance companies have to part with their money when they pay claims, and one way they can recover these costs is to file a claim against whoever is at fault for the property damage. When an insurance company files a claim against an at-fault third party to recover its costs, it is a subrogation claim. The legal principles behind subrogation claims make sense, as insurance companies should be able to recoup the costs involved in fighting and paying out a claim if someone else should have paid for the covered damage. However, insurance companies sometimes file subrogation claims in bad faith. These bad faith subrogation claims can cost you money when you are already in a difficult position. Contact a lawyer immediately if an insurance company has filed a subrogation claim for property damage against you.
How a Subrogation Claim Could Impact YouA subrogation claim's potential impact depends on your situation and your role in the property damage claim. A subrogation claim can affect you in these ways:
- If you are at fault for the property damage. If you are at fault for the property damage, the insurance company will almost certainly make a subrogation claim against you. In their view, they should not pay for damage you caused, either directly or indirectly. You may have to pay the entire repair cost in a situation like this.
- If you are the policyholder and you are not at fault. Even if you are not the subrogation claim's target, such a claim could impact the amount of money you receive. The insurance company will be collecting that money instead of you. Insurance companies must honor their policies in good faith, and they should pay back your deductibles when they receive money from the claim. If the insurance company doesn't repay you as it should, the subrogation claim could cost you money when you are already struggling.
- If you do not have insurance. This scenario generally applies only to auto accident property damage, but it could still happen to you. Suppose you do not have auto insurance and you are at fault for a crash. In that case, the other driver's insurance company will likely file a subrogation claim against you to recover the cost of repairing the other driver's vehicle. The subrogation claim might also include the cost of the other driver's medical bills and other expenses.
What Property Damage Might Lead to a Subrogation Claim?Nearly any type of property damage could lead to a subrogation claim, but a few of the more common subrogation claims include:
- Fire damage. Fire and smoke can cause severe damage to a home or business, and in some cases, the damage may be so severe that the owner cannot repair the structure. If the insurance company can show that you or another party had a role in starting the fire, they may file a subrogation claim to recover the claim's payout costs.
- Water damage. Rain, snow, and ice can lead to leaks, mold, and other structural damage in a home or business. This type of damage can be expensive to repair, which means an insurance company will likely want to find a way to recover at least some of its expenses.
- Flood damage. For many homeowners or business owners, flood insurance is a separate policy from their standard property damage insurance. The separate policies can lead to a more complicated legal situation when someone has suffered flood damage, and subrogation could come into play.
- Wind damage. High winds from a severe storm, tornado, or hurricane can cause damage to homes and other structures. This damage might be indirect, such as a tree blowing into a structure, or direct. In either case, you might receive a subrogation claim if the insurance company thinks they can show that you bore some fault for the damage.
- Motor-vehicle accidents. Repairing or replacing a car after an accident is expensive. In states with fault-based auto insurance or after especially severe accidents in no-fault states, the insurance company might file a subrogation claim against an at-fault driver to recoup the claim's payout cost.
Property Damage Subrogation Claim ComponentsAn insurance company could have a valid subrogation claim against you if they can establish any of these criteria:
- The insurance company paid a claim to a policyholder. Subrogation claims only occur when an insurance company pays a claim. They would have no grounds for subrogation if they did not actually pay out a claim to a policyholder.
- The insurance company did not volunteer to pay out the claim to the insured. Insurance companies rarely volunteer to do anything, as they are only required to pay out claims under the terms set by a particular policy. However, if the insurance company did volunteer to pay out a claim, they cannot pursue a subrogation claim against another party.
- The insurance company paid the claim to further their own business interests. This relates to the previous point and may seem counterintuitive, as paying claims requires insurance companies to pay people or companies. However, people have insurance to compensate them for the damage, and policyholders expect their policy to cover valid claims. Therefore, covering a policyholder's losses aligns with the insurance company's business interests. Otherwise, an insurance company does not have a valid subrogation claim.
- The insurance company must not bear primary liability for the initial property damage. Subrogation claims help insurance companies make up for their expenses by going after whoever is responsible for the property damage. If the insurance company is liable for the damage, it cannot pursue subrogation.
- The subrogation claim must not infringe on anyone else's rights. Rights infringement is often a critical issue in subrogation claims, as both the target of the claim and the policyholder could argue that subrogation is a violation of their rights. That said, showing how a subrogation claim violates your rights can be challenging, especially if you do not have help from an attorney.
What Is a Subrogation Waiver?A subrogation waiver is a legal agreement between the party responsible for property damage and the policyholder with damaged property. If the policyholder agrees to a subrogation waiver, their insurance company cannot pursue a subrogation claim against the party at fault for the property damage. You should not sign a subrogation waiver if a person or event damaged your property. Many insurance companies either do not allow subrogation waivers or require you to inform them first before you sign such an agreement. Signing a subrogation waiver without talking to a lawyer first could get you in trouble with your insurance company and affect your compensation from an insurance claim. However, there are some circumstances where signing a subrogation waiver might be the right move. For example, suppose the party responsible for the property damage wants to settle with you directly instead of going through the insurance process. In that case, a subrogation waiver could save you time, money, and hassle. Alternatively, getting the property owner to agree to a subrogation waiver could be smart if you were responsible for the property damage. Do not sign any waiver without talking to an attorney.
Ways to Fight a Subrogation Claim for Property DamageYou can pursue several strategies if an insurance company files a property damage subrogation claim against you. These strategies include:
- Showing you are not at fault for the damage. Subrogation claims rely on fault, and insurance companies can only file claims against those they can prove are liable for property damage. If you can demonstrate that you are not liable for the property damage, the insurance company will have no grounds for their claim, and you will not have to pay it.
- Challenging the amount of the claim. Insurance companies might inflate the value of a property damage claim so they can recover more money through subrogation. Even if you cannot get the subrogation claim against you dismissed, you might be able to show that the insurance company made an incorrect damage assessment, which means you could pay less to settle the claim.
- Subrogation waiver. If the property owner agrees to a subrogation waiver and their insurance policy allows them to do so, you can negotiate directly with the property owner avoid any subrogation claims.
- Technical violations of subrogation claims. To have a valid subrogation claim, insurance companies must meet specific legal criteria. An attorney might be able to help you challenge these criteria and get the claim dismissed. As a specific example, an insurance company that did not actually pay out a claim to the policyholder has no grounds for a subrogation claim.
- Negotiate the claim. If you and your lawyer are unable to stop the subrogation claim altogether, it is possible to negotiate. Most insurance companies are willing to negotiate because they want to settle claims quickly and get their money. When all else fails, negotiation is an option.
What to Do if an Insurance Company Files a Subrogation Claim Against YouIf an insurance company has filed a subrogation claim against you for property damage, talk to a lawyer right away. Ignoring the claim will not make it go away and could lead to a judgment against you. A property damage and subrogation attorney can review the claim with you, explain your options, and advise you about the best way forward. You should research attorneys who practice property damage and interview several. You need a highly experienced property damage attorney to work on your case and get the results you deserve. Don't try to outsmart the insurance company's team of attorneys. Contact a property damage lawyer today for a case review and let them get to work on your case.