In the context of insurance, what does "subrogation" mean?

Subrogation refers to the process whereby an insurance company seeks to recover its costs from a third party that is responsible for causing a loss to its insured. When a policyholder files a claim for damages, the insurer often pays the claim to the insured. Subsequently, the insurer gains the right to pursue the third party that caused the loss to recover the amount it paid to the insured. This process helps insurers manage their risk and minimizes losses, allowing them to maintain stability in the insurance market.

The other options describe different insurance concepts. Determining insurance rates typically involves actuarial analyses and considerations of risk factors rather than the right to pursue recovery. Coverage against lawsuits refers to liability insurance, which protects policyholders from claims alleging negligence or wrongdoing, but does not connect to the recovery of costs after a payout. A clause that voids coverage deals with specific conditions under which an insurer may deny a claim, but does not involve the recovery of costs from a responsible third party. Understanding subrogation is crucial for both policyholders and insurers, ensuring that accountability is assigned correctly when losses occur.