Subrogation in Contracts: Who Recovers What
What Is Subrogation?
Subrogation is a legal right that allows one party who has paid another's obligation to "step into the shoes" of the person they paid and pursue recovery from the party actually responsible. It is most commonly seen in insurance, but subrogation clauses appear in many types of contracts.
How Subrogation Works in Practice
Here is a common example: Your car is damaged by another driver. Your insurance company pays for the repairs. Through subrogation, your insurer then has the right to sue the at-fault driver to recover the money it paid you.
The insurer essentially takes over your legal claim against the responsible party.
Types of Subrogation
- Contractual subrogation — The right is explicitly written into the contract. This is the most common type in commercial agreements.
- Equitable subrogation — Courts grant subrogation rights even without a contract clause, based on fairness principles, to prevent unjust enrichment.
- Statutory subrogation — State or federal law grants the right of subrogation in specific situations, such as workers' compensation claims.
Where You May Encounter Subrogation Clauses
- Insurance policies (auto, health, property, liability)
- Commercial leases
- Construction contracts
- Loan and surety agreements
- Indemnification provisions
What to Watch For
- Waiver of subrogation — Some contracts include clauses where one party waives its right to subrogation. This is common in commercial leases where both parties carry insurance.
- Impact on your recovery — If your insurer recovers money through subrogation, it could affect how much you ultimately receive, especially for amounts above your deductible.
When to Consult a Lawyer
If you are asked to sign a waiver of subrogation or encounter a subrogation clause in a commercial contract, consider having an attorney review it. Waiving subrogation rights can shift significant financial risk between the parties.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.