Subrogation lets an insurer that has paid a covered loss step into the position of its insured and pursue the third party actually responsible for causing that loss. It appears constantly in property, auto, health, and workers' compensation insurance: once the carrier pays the claim, it acquires the insured's right to recover from the at-fault party, up to the amount it paid out, so the ultimate financial burden lands on the responsible party rather than the insurer or the insured's premium pool.

Most jurisdictions apply some version of the made-whole doctrine, which holds that the insured must be fully compensated for the loss before the insurer can recover anything through subrogation, particularly when a limited recovery fund or settlement has to be divided between the two. Many commercial and construction contracts include waiver-of-subrogation clauses, in which the parties agree in advance that neither side's insurer may pursue the other, precisely to avoid this kind of downstream litigation between contracting parties who intended to allocate risk through insurance in the first place.

In practice, a subrogated insurer often becomes the real party in interest in litigation against the responsible third party, sometimes appearing as a co-plaintiff alongside its insured or bringing a separate subrogation action entirely. Tension can arise when the insured's own uncompensated losses and the insurer's subrogation interest compete for the same limited recovery, such as a defendant's policy limits or a settlement fund that cannot cover both in full.

Insurance defense and coverage counsel litigate subrogation claims routinely, workers' compensation carriers pursue third parties to recoup benefits paid, and litigation funders and settlement negotiators need to account for subrogation liens before treating any recovery as fully belonging to the plaintiff.