Each year, insurance companies recover millions of dollars in paid claims through the doctrine of subrogation. Subrogation refers to the right of an insurance company to recover money it paid to or on behalf of its insureds due to the actions of at-fault third parties. After an insurance company pays its insured under first party coverage, the insurance company can file suit against the at-fault party to recover what it paid to its insured. An insurance company “steps into the shoes of its insured” to pursue a third party for damages. An insurance company will have the same rights as its insured when seeking compensation for losses.
An insurer’s right of subrogation is usually based on the terms of the insurance policy or the right of equitable subrogation (by operation of law).
In a subrogation lawsuit, the first party insured is referred to as the “subrogor.” The insurance company is referred to as the “subrogee.” Most insurance policies require the insureds to cooperate in any subrogation lawsuit. Also, if the insured’s recovery was reduced by a deductible paid by the insured, the insurance company can typically seek recovery of its insured’s deductible in the subrogation lawsuit.
But can an insurer have a right of subrogation against its own insured? Typically, an insurer does not have a right of subrogation or indemnification against its own insured. However, some courts have recognized an insurer’s right of subrogation against insureds who intentionally caused damage to the insured’s property.
Another limit on subrogation is a waiver of subrogation. Many condominium declarations, leases, and construction contracts contain subrogation waiver clauses. In these cases, the insurer is exposed to greater risk because the insurance carrier is prevented from seeking recovery from an at-fault party.
Illinois Subrogation Statutes - Deductibles
(215 ILCS 5/143b) (from Ch. 73, par. 755b)
Sec. 143b. Any insurance carrier whose payment to its insured is reduced by a deductible amount under a policy providing collision coverage is subrogated to its insured's entire collision loss claim including the deductible amount unless the deductible amount has been otherwise recovered by the insured, but if the deductible amount has been otherwise recovered by the insured it shall not be included in the subrogated loss claim and shall be excluded from the amount of loss pleaded. If the deductible amount is included in the subrogated loss claim the insurance carrier shall pay the full pro rata deductible share to its insured out of the net recovery on the subrogated claim. Administrative expenses of the insurance carrier cannot be deducted from the gross recovery, and only incurred expenses of the carrier, such as attorney's fees, collection fees and adjuster's fees, may be deducted therefrom to determine the net recovery. When the insurance carrier is recovering directly from a third party a claim by means of installments, the insured shall receive his full pro rata deductible share as soon as such amount is collected and before any part of such recovery is applied to any other use.
(Source: P.A. 83-588.)
Whose name can be used in a subrogation lawsuit?
(735 ILCS 5/2-403) (from Ch. 110, par. 2-403)
Sec. 2-403 (c) Any action hereafter brought by virtue of the subrogation provision of any contract or by virtue of subrogation by operation of law shall be brought either in the name or for the use of the subrogee; and the subrogee shall in his or her pleading on oath, or by his or her affidavit if pleading is not required, allege that he or she is the actual bona fide subrogee and set forth how and when he or she became subrogee.