What term describes the legal process that allows an insurer to seek recovery from a third party after paying a loss?

Subrogation is the legal process through which an insurer can step into the shoes of the insured to pursue recovery from a third party responsible for causing a loss, after the insurer has paid a claim to the policyholder. This mechanism allows the insurance company to recoup some or all of the costs it incurred when compensating the insured for their loss.

In practice, after the insurer pays the claim, they may investigate and take action against the liable third party to recover funds, thereby reducing their overall payout and ultimately helping to keep insurance costs lower for all policyholders. This process is fundamental to the functioning of property and casualty insurance, as it helps ensure that culpable parties are held financially responsible for their actions.

Other terms such as substitution, reimbursement, and indemnification refer to different concepts in insurance and recovery processes. Substitution involves replacing one thing with another, reimbursement generally refers to repaying someone for expenses incurred, and indemnification is the process of compensating for harm or loss but does not specifically pertain to the act of pursuing a third party for recovery after the insurer has compensated the insured.