Subrogation

Subrogation is a legal right allowing your insurance company to seek reimbursement from the person or business that caused a loss after your insurer has already paid your claim.

Simply put, your insurer pays you first—then they go after the at-fault party (or their insurer) to recover what they paid.

This process helps keep insurance costs lower overall and ensures the party responsible for the damage ultimately bears the financial burden.

Here’s what usually happens:

1. Your business suffers a covered loss.
2. Your insurance company pays your claim.
3. Your insurer investigates who caused the damage.
4. If someone else is responsible, your insurer seeks reimbursement from them.
5. If your insurer recovers money, you may get your deductible refunded.

You don’t have to sue anyone yourself, because your insurer handles it.

Subrogation isn’t just a behind-the-scenes legal process. It can directly affect:

• Your deductible: If your insurer successfully recovers money, you may get your deductible back.
• Your cash flow: You get paid first, which means you don’t have to wait for lawsuits to finish before fixing your building, replacing equipment, or getting back to work.
• Your role in the process: Once your insurer pays your claim, they take over the legal rights to recover that money. You usually can’t settle separately with the at-fault party without your insurer’s permission.

Subrogation can feel abstract until you see how it plays out in everyday business situations, such as:

• Property damage: A delivery driver crashes into your storefront. Your commercial property insurance pays for repairs. Then your insurer pursues the driver’s insurance company to recover what they paid.
• Workers' comp injury: Your employee is injured because a faulty machine malfunctions. Workers’ compensation insurance pays their medical bills. Your insurer then seeks reimbursement from the equipment manufacturer.
• Rented equipment: You rent a power tool that fails and damages your client’s property. Your insurer pays the claim, then pursues the rental company if the equipment was defective.

Subrogation most often comes into play with these types of business insurance policies:

• Commercial property insurance: Covers damage to your building, tools, inventory, or equipment when another party is responsible for the loss.
• Workers’ compensation insurance: Pays for medical bills and lost wages when an employee is injured or becomes ill while on the job.
• Commercial auto insurance: Applies when your business vehicle is damaged in an accident caused by another driver.
• Inland marine / tools and equipment insurance: Protects mobile tools, gear, and property while in transit or at jobsites when someone else causes the damage.
• Business owner’s policy (BOP): Bundles property insurance and general liability coverage, so subrogation can apply to many common small business losses.

If your policy pays first and someone else caused the loss, subrogation is likely involved.

There are two main types of subrogation:

• Contractual subrogation: Your policy gives your insurer this right automatically.
• Legal (equitable/statutory) subrogation: The law gives your insurer the right, even if it’s not spelled out in your policy.

In most business insurance, it’s written directly into the contract.