Claims Investigations and Subrogation Recoveries

When a loss occurs, claims investigations start with the basics: What happened? Who’s responsible? And how much should be paid? But there’s a fourth question that often gets overlooked: Can the payout be recovered through subrogation?

Subrogation gives insurers the right to step into the insured’s shoes and pursue reimbursement from the party that actually caused the damage. It’s a straightforward legal mechanism with massive financial impact. In 2021, U.S. insurers recovered an estimated $51.6 billion across auto physical damage, commercial auto liability, and personal auto liability lines. Still, billions more slip through the cracks each year.

With major recoveries on one side and missed opportunities on the other, subrogation belongs at the center of all claims investigations.

What is Subrogation?

Once an insurer pays benefits or damages to its insured under a valid claim, subrogation is the legal right that lets the insurer pursue reimbursement from the external party that actually caused the loss. In effect, the insurer steps into the shoes of the insured to recover what was paid.

Here’s how subrogation typically plays out:

• Auto accidents: The insurer pays for vehicle damage or medical costs, then seeks repayment from the at-fault driver’s insurer.
• Workers’ Compensation: If an employee is injured due to a defective machine or unsafe contractor work, the insurer may go after the equipment maker or third‐party contractor.
• Property damage: Suppose fire or water damage can be traced to a contractor’s negligence or a faulty installation. The insurer may recover against that contractor.

If during claims investigations no one spots that third-party liability, the recovery window can close before it’s even opened.

Why Do Claims Investigations Matter for Subrogation?

Claims investigations are the foundation of effective subrogation. Without thorough, timely investigations, recovery opportunities vanish. Here’s how claims investigations and subrogation are tightly linked:

• Preserving evidence: Delays or vague reports can destroy the insurer’s ability to recover. For instance, in some water-loss cases, experts have noted that simply saying “a shower arm was cut” without pinpointing the cause or responsible party can render the file non-viable for subrogation. Specialized cause and origin experts emphasize that collecting the failed component is not enough; full scene context, system testing, and forensic examination are all needed to build a strong claim.
• Assessing liability: The investigator must establish that another party is responsible. Without clear evidence of liability, subrogation isn’t possible. Industry data suggests that only a small percentage of claims present subrogation potential, and those opportunities can only be pursued when responsibility is well-documented.
• Acting before deadlines expire: Missed windows are unrecoverable dollars. Closed-file audits routinely show that claims are referred for subrogation too late, after statutes of limitation or settlement deadlines have passed, making recovery legally impossible.

Strong claims investigations convert subrogation from a legal theory into actual dollars recovered.

When To Use Subrogation

Subrogation is most effective when liability is clear, evidence is preserved, and the case is pursued in time.

Example:

Consider a Workers’ Compensation claim where an employee was seriously injured by a defective piece of equipment. The insurer covered medical bills and wage loss, but because investigators identified the defective product and preserved the evidence, the insurer successfully recovered costs from the manufacturer. Cases like this show why subrogation matters: every dollar recovered is a dollar saved for the insurer and the employer.

Auto claims are another good example. In 1996, insurers recovered about $12.8 billion in auto physical damage and liability claims through subrogation and salvage. By 2021, that number had climbed to $31.2 billion, more than double in 25 years. That growth shows the financial weight subrogation carries when insurers make it a priority.

However, subrogation isn’t always the right path. If there’s no identifiable third party, if critical evidence is missing, or if legal deadlines have expired, recovery simply isn’t possible. In some cases, the potential payout is so small compared to litigation costs that it’s not worth pursuing.

But more often, missed recoveries happen because opportunities were overlooked. In a review of 100,000 personal injury protection (PIP) files, investigators uncovered valid recoveries in claims that had already been closed as “no subrogation.” That oversight alone cost insurers billions. Across the industry, experts estimate $15–20 billion in recoverable dollars are left behind every year because claims aren’t investigated with subrogation in mind.

When used wisely, subrogation transforms investigations into recoveries. When overlooked, it becomes one of the biggest leaks in claims operations.

Best Practices in Claims Investigations

Avoiding those missed billions starts with building subrogation into the investigative process from day one. Here are five practices that consistently make the difference:

1. Spot opportunities early: Train adjusters and investigators to flag potential third-party involvement right away. If you wait until after a claim is settled, the window for recovery may already be gone.
2. Document thoroughly: Strong recoveries depend on strong evidence. Photos, maintenance logs, chain-of-custody records, and detailed expert reports are often what separate successful subrogation from a dead end.
3. Track deadlines closely: Statutes of limitation and contractual deadlines are unforgiving. A single missed date can wipe out an otherwise valid recovery.
4. Leverage technology: Insurers are increasingly using AI and text-mining tools to identify hidden subrogation potential in claim notes. Some carriers have reported double-digit percentage increases in recoveries after rolling out these systems.
5. Audit closed files: Periodic reviews of “no subrogation” files often reveal missed opportunities. Closed-file audits not only recover dollars but also highlight process gaps so teams can prevent repeat mistakes.

Subrogation is one of the most powerful tools insurers have to control costs and hold the right parties accountable. Done well, it returns millions (sometimes billions) to insurers and employers every year. But it only delivers when claims investigations are thorough, evidence is preserved, and opportunities are spotted early.

In today’s claims environment, overlooking subrogation is an expensive mistake. The solution is simple: build subrogation awareness into every stage of the investigative process. When claims teams do that, they transform missed opportunities into meaningful recoveries.

Identifying recovery opportunities begins with thorough claims investigations. Connect with us today.

Check out our sources:

Brien, M. J. Trends and Practices in Healthcare Subrogation. U.S. Department of Labor, n.d. (c. 2019), Department of Labor – EBSA, dol.gov/sites/dolgov/files/ebsa/researchers/analysis/health-and-welfare/trends-and-practices-in-healthcare-subrogation.pdf.

How’s the Recovery? Salvage and Subrogation in the Property & Casualty Industry. National Association of Insurance Commissioners, 2023, content.naic.org/sites/default/files/cipr-jir-2023-2.pdf.