What does "subrogation" mean in the context of insurance claims?

In the context of insurance claims, subrogation refers to the right of an insurer to seek recovery from a third party that is responsible for a loss after the insurer has compensated the insured's claim. When an insurance company pays for the damages or losses incurred by their policyholder, they may have a legal right to "step into the shoes" of the policyholder and pursue reimbursement from the party that caused the loss. This principle is important because it helps insurers recover funds they have paid out, ultimately allowing them to maintain lower premiums for all policyholders.

Subrogation serves several purposes in the insurance industry. It helps prevent the insured from receiving a double recovery (both from their insurer and the responsible party) and encourages accountability among those whose actions may lead to damages. This process balances the interests of the insurer, the insured, and the liable third party.