Exhibiting negligent behavior has consequences. For instance, your negligent behavior could lead to an accident. After speaking with the other party and seeing that they’re fine, you may think you’re out of the woods, but that may change quickly because of a subrogation letter.
A subrogation letter may inspire confusion and bewilderment the first time you see it. Know that you cannot afford to ignore it, however.
This article will teach you more about the process of subrogation and why it’s something you need to know. You should also read on if you want to find out how to react after receiving a subrogation letter.
What Is Subrogation?
To better understand the significance of the letter you recently received, it helps to define what subrogation is.
According to Investopedia, subrogation is a term that refers to one party essentially taking the place of another party. Think of someone who subrogates as a person who stands in for you. They are a substitute of sorts.
So, why is another party deciding to take your place? That’s because they want to receive compensation.
Subrogation is commonly carried out by insurance providers, and they do so because they want to recoup their money.
Providing insurance is still a business at the end of the day. While insurance providers may prioritize giving you the funds you need, that doesn’t mean they will refrain from using all available means to regain the money they lost.
Often, the method of recouping money made available to insurance carriers is the process known as subrogation. In the context of insurance, subrogation refers to an insurance carrier attempting to recover costs from a third party after they gave their insured party appropriate compensation.
The money sought after by the insurance carrier from the third party is equivalent to the money, they provided to the person they insured. Subrogation can happen whenever you send in a claim to help pay for medical expenses and to pay for property damage.
Under the law, your insurance carrier has the right to take your spot and go after the third party. Your insurance provider would have the same rights that you do if you were the one pursuing a claim against the offending party.
The Benefits of Subrogation for the InsuredIt's clear that the process of subrogation is to give insurance providers a way to recoup their losses, but what incentives do individuals have to assist with it?
The first benefit for the insured is that cooperating with their carrier can help speed up the claims process.
If your insurance carrier knows that you will help them regain their losses after you file your claim, then they may be more inclined to process it as soon as possible. Obviously, your carrier should compensate you if you have a valid claim but cooperating with them can help the process move faster.
Another reason subrogation occurs frequently is there are financial benefits for the insured individual.
Many insurance policies require insured parties to first pay for a deductible before they can receive their claims check. If your insurance provider already subtracted your deductible from the amount you received when you filed your claim, you may receive that money back if they successfully obtain money from the other party.
Do note, though, that you may not receive the full amount of your deductible if an investigation into the accident reveals that you were at least partially at fault for what happened. Instead of receiving an amount equivalent to your deductible, you may only receive a percentage of it. percentage of it.
The Subrogation ProcessNow that you have a better grasp of what subrogation is and how it benefits the insurance carrier and the insured party, you probably understand why it happens often.
It's now time to familiarize yourself with the subrogation process so that you know what to expect if they find you at fault for an accident.
The process of subrogation will typically start with the insurance carrier attempting to contact someone on your side.
Who they contact depends on whether you are insured? If you have insurance, they will reach out to your carrier first. If you're uninsured, they will contact you directly.
Once they’ve managed to get a hold of either you or your insurance provider, the other party’s carrier may discuss their plans. You can settle the matter right then and there if you find their terms agreeable, but that is up to you.
Ducking the other party’s insurance carrier is not advisable in this scenario as they may assign someone to determine your whereabouts through the process of skip tracing, according to Zacks.com.
The next step of the subrogation process will involve the other party's insurance carrier sending you a letter.
What’s inside a Subrogation Letter if You Are the Party Responsible for the Accident?
The contents of the subrogation letter will contain the details pertinent to your case. The letter will list the amount the insurance carrier paid, when they paid off that claim, and a brief detailing of why they paid that claim. You will also probably see a line in that letter telling you to get in touch with the insurance carrier to hammer out an agreement.
What’s inside a Subrogation Letter Your Insurance Provider Sent You?
By the way, you may also receive a subrogation letter even as the person who filed an insurance claim. However, the letter sent to you is different in the sense that it’s more about requesting information as opposed to urging you to provide compensation.
When insurance carriers send subrogation letters to their own clients, they do so to ask about what happened during the accident, injuries they might have, damage to their property, and they will also request information about the party responsible. They may specifically ask about the name of the other party and their insurance provider if they have any.
What Happens if You Ignore a Subrogation Letter as the Responsible Party?
It’s important to point out here that you are not legally obligated to respond to a subrogation letter sent by another person’s insurance provider. You’re not violating any laws by opening that letter, reading it, and then chucking it in the trash. You can also continue ignoring additional subrogation letters that they send you.
Do note, however, that you are passing on an opportunity to resolve matters by ignoring a subrogation letter. Responding to a subrogation letter sent by a different insurance carrier can potentially save you from having to deal with a lawsuit down the line.
Lawsuits are more troublesome to deal with because of all the moving parts involved. You'll likely need to hire a lawyer if you want to stand a chance of winning the case, and a trial can take up plenty of your time.
If you know that you’re at fault for the accident and understand that the chances of you receiving a favorable verdict are slim to none, you might as well settle with the insurance carrier before the case goes to trial.
On the other hand, you can also use this lawsuit as an opportunity to prove that you should not have been deemed responsible for the accident. Take advantage of this chance afforded to you by working with a lawyer and presenting a compelling argument to the judge and the jury. Gather any evidence you have and use that to illustrate to the court that the investigation reached the wrong conclusion.
Zacks.com reminds defendants that they can also cite the statute of limitations as a defense.
You need to be confident that you can win the case if you decide to participate in the trial because you could end up losing even more money if the court rules against you in the end.
What Happens if You Ignore a Subrogation Letter as the Insured Party?
Your insurance carrier expects you to cooperate if they are pursuing subrogation. When they send you, a letter requesting important details related to the accident, they expect you to supply the information promptly.
For the most part, you are a passive party in this predicament. You don’t need to do anything beyond giving them the details they need.
Note that your level of cooperation should not affect whether your carrier provides you with the funds you requested.
How Do You Keep Your Insurance Carrier from Pursuing Subrogation?
Let’s provide an example for this next section.
Here’s the scenario: You’re driving along, not causing any trouble when a vehicle coming from a different street suddenly collides with your car. After getting out of the driver’s seat to talk with the other party, you find out that it’s a friend of yours. Your friend tells you that something malfunctioned in their car, and that led to the collision.
You know that your friend is having trouble with money and you don’t want them stressing out about this accident. To ease the financial burden on your friend, the two of you decide to settle the matter on your own instead of getting the courts involved.
Settling with your friend in that manner protects them from the process of subrogation. You will still need to report the accident to your insurance carrier, but they cannot pursue any further action against your friend because settlements often require signing a waiver of subrogation.
That above scenario represents one way to keep your insurance provider from pursuing subrogation, but it’s not the only way to accomplish that.
What Is a Waiver of Subrogation?
We already touched on it briefly, but it’s worth mentioning again that a waiver of subrogation can stop your insurance carrier from recouping claims from a third party.
You’ll often encounter requests to fill out waivers of subrogation in matters related to commercial auto insurance, commercial property insurance, general liability, and workers’ compensation, according to The Balance.
Waivers of subrogation can be useful because they protect different parties from potential lawsuits. No one likes dealing with lawsuits, and so they want to avoid the subrogation process as much as possible. Don’t be surprised to see mutual waivers of subrogation in contracts you sign.
Now obviously, the insurance company can be put in a tough spot if the parties agree not to allow subrogation. In exchange for taking on that amount of risk, insurance companies will charge extra to have a waiver of subrogation included in a policy. That fee is separate from your premiums.
Including a waiver of subrogation in your policy will be more costly upfront, but it can be worth it in the long run.
Additional Things to Note about Subrogation
Before we wrap things up, let’s highlight a few more things to know about subrogation.
First, subrogation letters may not necessarily arrive right away. Even if it’s been a few weeks or even months after the accident, you may still receive a subrogation letter from another person’s insurance provider.
As the insured party, you can only receive financial compensation by either filing a claim with your own insurance provider or by settling with the party that caused the accident. You cannot do both.
Lastly, subrogation is often a result of auto insurance, property insurance, and health insurance claims. Decide if you would like to include a waiver of subrogation in your policy before finalizing your plan.
At first, subrogation may not seem like a big deal when an insurance carrier is trying to contact you or sending you letters. Don’t ignore those attempts at communication forever, though, as you could end up getting dragged into a complex legal battle if the insurance company ends up suing you.
Figure out the right way to respond to a subrogation letter by consulting with a lawyer. Contact us at Saeedian Law Group today and allow us to help you better handle this ordeal.