Washington State Insurance Practice Exam

Subrogation is a fundamental principle in insurance that empowers an insurer to pursue recovery from a third party that is legally responsible for a loss after they have compensated the insured. When an insurance company pays a claim to the policyholder for damages caused by another party, subrogation allows the insurer to take over the policyholder's right to seek compensation from that third party. This mechanism ensures that the responsible party is held accountable and allows the insurer to recoup losses, which ultimately helps keep premiums lower for all policyholders.

This process is essential because it prevents the insured from receiving a double recovery from both the insurer and the third party. Instead, the insurer assumes the rights of the insured in seeking damages, thereby reinforcing the principle of indemnity, which underpins most insurance contracts. By facilitating a method for insurers to recoup costs from those responsible for the loss, subrogation plays a crucial role in the financial stability of insurance operations.