An insurance policyholder who suffers a loss due to a bad actor, or a negligent one, files a claim with your insurance company for compensation. You then have a responsibility to pay for the damages unless another exclusion or condition applies that would invalidate the claim. This is part of the risk that you assume when you provide insurance to the policyholder. However, if you know the identity of the third party that caused the loss, it may be possible for you to recover at least some of the damages that you paid through the process of subrogation, or substituting your company for the insured.
The injured party has the right to sue the bad or negligent actor responsible for the damages. Through the process of subrogation, your insurance company assumes some of the rights of the insured, including the right to bring a lawsuit against the third party in compensation for what you paid to recoup the loss.
According to the International Risk Management Institute, subrogation offers benefits to the insured as well as your insurance company. It helps to keep premiums low and prevents policyholders from having to await a judgment from the court before receiving compensation. Subrogation also serves to hold businesses, corporations and individuals responsible for their actions.
Keep in mind that you must receive permission from policyholders before assuming their rights. It is typical for the contracts between you and customers to include a subrogation clause. By signing the contract, policyholders agree to grant you the right to subrogation as needed to hold wrongdoers financially accountable.