Subrogation is the right of the insurer to assume the rights of the insured that arise automatically as a matter of law or by the agreement as part of the contract (Cheeseman, 2012). Subrogation by contract is common and arises in insurance contracts, especially in accidents and injuries that require monetary compensation. Therefore, it is the act of insurance companies seeking the reimbursement from the person or legal entity responsible for the injury or the accident after realizing that they have paid money that ought to have been paid by another party. In other words, it is the substitution of one person or groups by another in respect to a debt or insurance claim after realizing that the other party is responsible for such claims.
According to Cheeseman (2012), subrogation can affect both the insured and the person who has caused the injuries or the damage in various ways. If the accident or the damage was caused by the insured, the insured is thus responsible for the damage caused and the insurance company is likely to subrogate against the insured. For the person who has caused the damage, the subrogation can be applied against his company so that the insurance company gets a refund for their expenses used to bail out their client.
There are other ways by which insurance companies are likely to keep their damages as low as possible in order to improve on their profitability. The insurance companies keep their damages as low as possible to carefully examining all the conditions surrounding the accident to check is the possibility of transferring the liability to other third parties. In addition, the insurance companies’ only pay for what they think is reasonable concerning the nature of the industries or the damage to their client.