What does "subrogation" refer to in auto insurance?

Study for the Ontario Automobile Supplement Test. Study with flashcards and multiple-choice questions, each question has hints and explanations. Get ready for your exam!

Subrogation in auto insurance refers specifically to the right of an insurer to pursue a third party for recovery of costs paid to the insured. This process typically occurs after the insurance company has compensated the policyholder for a covered loss. Once this payment is made, the insurer then has the legal right to seek reimbursement from the party responsible for the damage.

This mechanism ensures that the insurer can recover some of its costs and helps to keep insurance premiums lower over time. By recouping funds from at-fault parties, the insurance company can manage its financial risk and ultimately maintain a fair system for all policyholders.

The other choices do not accurately describe subrogation. Filing a claim with your insurer involves a different administrative process and is focused on reporting an incident rather than recovery. A policyholder’s obligation to pay a deductible refers to the portion of a claim that the insured is responsible for before the insurer covers the rest, which is unrelated to subrogation. The ability of an insurer to cancel a policy for non-payment is a separate contractual issue that does not involve subrogation principles.

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