Definition - What does Subrogation Principle mean?
The subrogation principle is a term for a legal right of most insurance companies. An important part of most property insurance policies, it states that if a third party damages the insured's property, the insured has to transfer their right to sue the third party to their insurance company before the insured can receive payment for their insurance claim. By accepting the payment, the insured agrees to transfer over their right to sue.
Insuranceopedia explains Subrogation Principle
The subrogation principle is a way for insurance companies to manage losses after paying a claim. Any time they pay out a claim, the insurance company tries to recuperate the money in court by suing the person who caused damages to the insured. However, the insurance company doesn’t have the right to sue until the insured transfers that right over. Therefore, insurance companies include the subrogation principle as part of their terms for paying an insurance claim. The insured automatically transfers over their right to sue so the insurance company can move forward immediately with the legal proceedings.