Define "subrogation" in insurance terms.

Subrogation is a crucial concept in the insurance industry that pertains to the rights of insurers. It occurs when an insurance company pays out a claim to an insured party for a loss and then seeks to recover that amount from a third party who is responsible for the loss. This process helps insurers manage their costs and maintain the efficiency of the insurance system.

When an insurer pays for a damage or loss, they effectively "step into the shoes" of the insured party and take over the insured's right to pursue any claims against the responsible party. This process allows the insurer to recoup the claim payout if the third party is found liable, thereby preventing the insured from receiving a windfall while also helping reduce future premium costs by recouping losses.

Understanding subrogation is essential for comprehending how insurance contracts function and the responsibilities of both insurers and insured parties. It highlights the interconnectedness of liability and risk management within the insurance framework.