What is 'subrogation' in homeowners insurance?

Subrogation in homeowners insurance refers specifically to the insurer's right to pursue recovery of costs from a party that is deemed responsible for a loss. When a homeowner files a claim for damages or losses that are covered under their policy, the insurance company pays for the claim based on the terms of the policy. If it is later determined that another party was at fault for the damages (for example, if a neighbor's tree fell on the house due to neglect), the insurance company has the legal right to seek reimbursement from that third party or their insurance. This process helps insurers to manage losses and ultimately keep premiums lower for policyholders.

Understanding subrogation is essential because it illustrates how insurance companies manage their financial risk and ensure that losses are properly assigned to the responsible parties, rather than being absorbed solely by the insurer or passed on to all policyholders through higher premiums.