What is the purpose of the Subrogation Clause in an insurance policy?

The Subrogation Clause in an insurance policy serves a crucial purpose in the context of claims and liability. This clause allows the insurer to step into the shoes of the insured party after a loss has occurred and the insurance company has paid for the damages. By doing so, the insurer can pursue recovery from parties that are responsible for the loss, thereby seeking to reclaim the amount paid to the insured.

The significance of this clause lies in its ability to help maintain equity within the insurance system. If an insurance company did not have the right to subrogate, it would bear the full cost of the paid claims, which could lead to increased premiums for all policyholders. By allowing insurers to recover costs from third parties at fault for the loss, the subrogation process helps keep insurance premiums more manageable and aligns the responsibility for losses with the party that caused them.

This aspect also emphasizes the legal principle that no one should profit from an insurance claim. Therefore, once the insurer compensates the insured, the insurer gains the right to any compensation received from the responsible third party, reinforcing fair treatment in the insurance system.