Subrogation
The word strikes fear for many business owners. But how does something that sounds equitable create such an issue in practice? Subrogation is the substation of one creditor's rights to another party. For insurance, this usually involves an insurer pursuing an at-fault party when they have had to pay out for loss or damage to insured property.
In the day-to-day run of business, minor damage and loss often get dealt with, with minimal drama. The at-fault party pays to repair the harm they have caused or to replace what can't be fixed. Frequently, there is a more significant commercial relationship to maintain, and the parties can negotiate as equals. Also, it's in everyone's interest to put it behind them and move on.
However, the situation becomes more complicated when insurers become involved. Because generally, there is no commercial relationship between the insurer and the at-fault party being pursued, and often, there is a significant power imbalance between the parties. And insurers do take advantage of it!
So, what does this mean for you, the insured?
Often, the first notification that an insurer is subrogating against you is that they will send you a 'Hold Liable' letter. If this happens, notify your insurer ASAP. Let them know you are not alone and have an insurer who will dispute unreasonable claims against you.
Don't take anyone's word that you don't need to worry about their property in your care "because it's all insured". Yes. It is insured for them, but that will just likely mean you will be sued by their insurer if there's damage. Even if it's not your fault.
Don't agree to give away your insurer's rights to subrogate when you agree to terms and conditions within contracts. If your insurer pays you for your loss, they'll want to recover from anyone they deem liable. If you've taken that ability away from them without their consent, it could prejudice your cover
Subrogation is a cornerstone of the civil legal process. It is critical to be aware of it, act promptly if you are made aware of a claim against you and be mindful not to prejudice your insurer's ability to use it.
