Subrogation is a broad concept that falls under the category of equitable remedies. The right of subrogation allows for another party to be substituted in place of a creditor in order to obtain recovery for damages or losses from the debtor. The substituted party then gains the rights of the creditor against the debtor and can recover directly from the debtor. The third party obtains these rights from the creditor by paying the entire amount owed to the creditor.

Thus, the main purpose of subrogation is to allow the substituted party, known as the “subrogee”, to obtain reimbursement for payments they made in connection with the legal claim or debt. The original creditor is called the “subrogor” and forfeits their right to recovery to the subrogee. The subrogee is said to “step into the shoes” of the subrogor.

Subrogation is most common in instances involving insurance companies. It is also common in cases involving mortgages, surety and guaranty, tax debts, banking accounts and basically anytime a debt is has been paid by a party other than the debtor.

Subrogation is very similar to the legal principle of contract assignment, except that subrogation is sometimes allowed to occur without the consent of the original parties involved because the subrogation is ordered by a court.

What Is an Example of Subrogation?

A common example of subrogation involves insurance coverage. Sometimes, an insurance company will cover some or all of the losses in an accident. Thus, the claim against the liable party will be subrogated to the insurance company, and the company will be able to recover the losses from the party that caused the damages.

In other words, suppose that defendant D has damaged person X’s car. Then, the insurance company, “IC”, pays for some of the repairs to X’s car. Here, IC has become the subrogee and X has become the subrogor. This means that IC is entitled to recover the damages that X would normally have recovered from D, since IC paid for the repairs.

The insurance company therefore assumes the rights and benefits that X would have recovered from D. In this example, the insurance company would clearly be entitled to recover from X, although the amount of damages might be limited to the amount that the insurance company spent on the repairs. As you can see, X can no longer recover from D, since they have already been reimbursed by the insurance company. Thus, subrogation prevents X’s “double recovery.

What Are the Different Types of Subrogation?

Subrogation can occur through several different means. Some of the different types of subrogation are:

  • Legal: The subrogation is authorized by operation of law. This type can take effect without a formal agreement between the parties. It may also be modified by a contract.
  • Conventional: The terms of subrogation are specifically stated in a written contract. The contract dictates all the various conditions under which subrogation is to occur.
  • Statutory: The subrogation is based on a statute that has been enacted by legislature.

Some states require that subrogation agreements be put into writing before they are enforceable. This is especially true for situations involving real property or taxes.

Who Is Held Liable in a Subrogation Situation?

Basically, the party that committed the wrongdoing or violations is still held liable in a subrogation situation. The only difference here is that the party receiving the compensation is different from the party that was actually wronged. Subrogation basically means that a different party can hold the defendant liable for their actions. Since subrogation is an equitable remedy, this means that all the limitations and requirements must meet equitable principles. All the various equitable defenses apply, such as clean hands and laches. For example, the subrogee cannot recover damages if they themselves have committed a similar type of wrongdoing.

Do I Need a Lawyer for Subrogation Disputes?

Though it may seem straightforward, subrogation is actually considered to be one of the more complex and highly technical principles of equity. Therefore, it is highly recommended that you work with a qualified lawyer if you will be involved in a subrogation issue. An experienced financial lawyers can help explain your state’s subrogation laws, as well as your role as the subrogee or subrogor.