Insurance Subrogation – Why you may be on the hook!

By Dante Nicolello

Many people believe insurance companies are there to help and pay for damage in the event of misfortune. When the insurance company steps in many feel a sense of relief because someone will be paying the bill. But, there is a new trend happening now where insurance companies are the ones coming after people for money. They use harsh tactics and hire aggressive collection agencies. They are able to do this by using a very old part of the law called subrogation. Here is what you need to know…

Subrogation happens when an insurance company pays out a claim to its insured, then goes after someone else for the money it paid out. Here’s how this can happen. You may have been in a car accident where the party at fault was unclear, or have been the tenant in a building where there was damage caused by a contractor you hired.  This damage could be, for example, a broken pipe which leaked to the five units below you. Although you feel bad for your neighbors, but because you know the building requires everybody to have insurance you know your neighbors are protected. Everything seems good because they are all paid by their insurance companies. But then your neighbor’s insurance companies invoke their subrogation rights and come after you. These insurance companies may now have the legal right to sue you on behalf of their insureds, your neighbors. By paying for your neighbors’ damage claims, you may now be on the hook. Normally, your insurance company will step in and cover these claims and pay your neighbors’ insurance companies on your behalf, but this may not always be the case. For example, if your insurance coverage lapsed or there was an error in your application, your insurance company will look to get out of its obligation to defend you.  There is also the possibility you did not take enough liability coverage. Let’s say you took $50,000 in liability coverage, but the total of all your neighbors’ claims total up to a higher amount, you may be personally liable for the difference. The same thing could happen in a car crash. If your coverage amount is less than the claim amounts the other insurance companies paid out to their policy holders, you could be on the hook personally.

If you are ever involved in a subrogation claim, it is important you notify your insurance carrier right away. If they will not cover it, you need to get legal help. Don’t just hope it goes away. Even if the event is not your fault, the insurance company may file a lawsuit and send your case to collections if you fail to defend yourself. Do not take a default judgment. Even if your feel you are liable, there are opportunities to have your lawyers negotiate a settlement. These settlements could be for an amount much lower than the insurance company had been seeking initially.


About the Author

Dante A. Nicolello is a named partner at Lau & Nicolello, LLC. He holds a JD from New York Law School and is licensed to practice law in both New York and New Jersey.