Overview of Insurance and Personal Injury Law.
Insurance companies are for profit entities, quite often large, publicly-traded corporations, with a fiduciary duty to maximize profit to their shareholders, partners, or owners. Given their fiscal responsibilities, insurance companies seek to minimize their overall financial exposure over the course of a personal injury suit.
When a customer purchases an insurance policy, the customer is purchasing a contract. In consideration for a sum of money (the premium), the insurance carrier indemnifies the insured against a risk of loss from one or more specified contingencies. The insurance carrier also provides a defense for their insured should they be the target of one or more contingencies as contained in the contract.
Subrogation is the insurance company’s right of recovery against a third party, involving the substitution of one party for another party in payment of a debt. Once the debt is paid, the paying party is entitled to all rights and remedies of the debtor (i.e. the subrogor). This is the applied principle when an insurance company is entitled to “all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the insurance policy.” (Black’s Law Dictionary)
In an automobile accident case, subrogation occurs when the insurance company pays their insured for damages caused by someone else (i.e. the third party); the insurance company can then seek those costs from the at-fault driver. Typically, the insurance company is limited to the rights of their insured against the third party, therefore the insurance company can only seek to recover damages stemming from that accident. In a subrogation action the insurance company “steps into the shoes” of their insured to pursue a claim against the third party.
Contribution is a separate right in which an insurance carrier seeks contribution from one or more insurance companies if another company is liable for the same tort. When two or more insurance contracts cover the same loss, one insurance company can seek contribution from another responsible entity.
Reimbursement is simply repayment or indemnification for a debt. An insurance company can claim repayment from a party who has a duty for such payment. When an insurance company seeks reimbursement it is seeking someone to repay the debt.