What does a subrogation clause in insurance allow an insurer to do?

A subrogation clause in insurance is a vital provision that grants the insurer the right to pursue recovery from a third party responsible for a loss after it has compensated the insured. When an insurer pays a claim to the policyholder, the insurer essentially assumes the legal rights of the insured to seek reimbursement from the party that caused the damage or loss. This process is known as subrogation.

The purpose of this clause is to prevent the insured from receiving a double recovery—meaning the insured should not profit from the insurance claim while also being compensated by a third party. By allowing the insurer to step into the shoes of the policyholder and pursue the third party, the subrogation clause helps ensure that costs are fairly allocated and can contribute to keeping insurance premiums stable by reducing the insurer's overall loss payouts.

This clause is essential for maintaining the balance within the insurance system, as it helps insurance companies recover some of their expenses and can ultimately lead to lower premiums for all insured parties. Thus, understanding the role of subrogation is crucial in comprehending how insurance claims are handled and how insurers manage risk and costs.