If a reckless driver slams into your car, your collision insurance – which reimburses you for damage to your own vehicle – will pick up the tab. As the innocent victim, it’s only fair that you don’t have to pay for damage.
But the process does not end there. When an insurance company covers a loss that is not its policyholder’s fault, the insurer may pursue the at-fault party for damages. This process is known as subrogation.
“Virtually every insurance policy gives the insurer the right to subrogation,” says Amy Bach, executive director of United Policyholders, which provides insurance information to consumers.
In most cases, a subrogating insurance company will seek the damages from the at-fault motorist’s car insurance company, rather than going directly after the driver, says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.
But what happens if you are the driver at fault? In most cases, if you have enough coverage, your insurance company will pay out the losses.
However, if you don’t have adequate insurance to cover the claim – or if you have no coverage at all – it is possible the insurance company that paid a claim to the driver who’s not at fault could come after you, Worters says.
“It depends on the amount of coverage you’ve taken out and what the losses are,” Worters says.
She says that if you buy only the state minimum amount of insurance and are found negligent in an accident, you could be responsible for paying for the damages.
When it comes to car insurance, Bach says subrogation is “very common.”
Here’s an example of how it works: Imagine your car is badly damaged in an accident that isn’t your fault. You file a claim with your insurance company and a check arrives in the mail. At some point, your insurance company will seek to collect reimbursement from the at-fault party.
If you’re the innocent motorist and an insurer successfully collects from the at-fault driver’s insurer, any deductible you paid to your own insurance company during the claims process will be reimbursed by your insurer.
But if you’re the at-fault driver, you and your insurance company likely will be on the other side of the subrogation equation.
Gerard Harney is an attorney and subrogation expert with California law firm Cozen O’Connor. In the vast majority of situations, the subrogating insurance company goes after the at-fault driver's insurance coverage, he says. “The first thing you want to do is go after the low-hanging fruit, which is insurance coverage on the other side,” Harney says.
Greatest risk to you
An at-fault driver is most at risk of having to pay financial damages out of his or her pocket if insurance coverage is inadequate – for example, if the driver has purchased just the state-mandated minimum amount of coverage and damages exceed that level.
But even if damages do exceed your coverage level, it’s best to promptly report the accident to your insurer and let it handle the situation, Harney says. Insurers have the expertise to get you the best possible resolution, says Harney, adding that your insurer will try to settle the claim out of court first.
In most cases, the insurance company that is subrogating the claim will agree to settle for whatever amount of coverage you have, Harney says, even if it’s less than adequate to fully cover the claim amount.
Going to court
However, if the subrogating insurance company refuses to settle, the matter could end up in court. In such a situation, a judgment that goes against you could result in your insurance company paying out the full amount of your policy limit, leaving you responsible for the rest.
But such an outcome is not common, Harney says. And even if the insurance company that is subrogating will not settle, your own insurer is obligated to defend you if the matter ends up in court.
Harney says it’s probably wise to consider talking to an attorney if a dispute can’t be settled. But he says your insurance company remains your biggest ally in a subrogation matter.