Subrogation, Salvage & Recovery

Paying a claim is not always the end of the money. When someone else caused the loss, the insurer that paid steps into its insured's shoes and recovers from the party at fault, usually that party's insurer: subrogation. When the insurer paid for a total loss, it owns what's left, and sells it: salvage. When the insured owes a deductible the insurer advanced, or a reinsurer owes its share, or a payment went out twice, there is money to collect. Recoveries arrive months or years after the payment, sometimes after the claim closed, and they have to be credited to the same exposure, cost type and accident year the payment was charged to, shared with the insured where the law says so, and passed through to reinsurers that paid part of the loss. Auto insurers trade subrogation demands with each other at a volume measured in millions a year, which is why most of it runs through one inter-company arbitration system.

This chapter covers subrogation rights and what defeats them, finding subrogation, demands and inter-company arbitration, deductible recovery with a worked comparative fault example, salvage with net proceeds, other recoveries, and recovery accounting. Total loss valuation and title are in Auto Claims & Total Loss; reinsurance recoverables are in Reinsurance Operations.

How the Platforms Do It#

As of November 2026, from public sites and filings (figures are each company's own):

Subrogation Rights#

Subrogation is the insurer's right, after paying its insured, to pursue the party responsible for the loss, up to what it paid. It comes from the law of indemnity and from the policy's own transfer-of-rights condition, under which the insured must do nothing after a loss to impair the insurer's rights. What defeats or limits it:

• No one else at fault. Single-car accidents, weather, the insured's own fault.
• The insurer's own insured. An insurer can't subrogate against a person insured under the same policy (a permissive driver, an additional insured), the anti-subrogation rule.
• Waivers. Commercial contracts (leases, construction contracts) commonly have each party waive subrogation against the other, and policy forms commonly permit written waivers made before a loss, while a waiver made after the loss impairs the insurer's rights. The underwriter needs the waiver on file before the loss, and the claim system needs it at FNOL.
• Statutory limits. New York's no-fault law lets an insurer that paid first-party benefits recover from another vehicle's insurer only where a vehicle weighs more than 6,500 pounds unloaded or is used principally to carry people or property for hire, and makes mandatory arbitration "the sole remedy" (N.Y. Ins. Law 5105). Arbitration Forums runs separate PIP and New York PIP programs for these inter-insurer claims.
• Comparative fault. The recovery is reduced by the insured's share of fault, and in modified comparative negligence states it disappears above the threshold: Florida, since 2023, bars recovery by "any party found to be greater than 50 percent at fault for his or her own harm" (Fla. Stat. 768.81(6), from ch. 2023-15).
• Time. The insurer's claim is the insured's claim, so it carries the insured's limitation period; Florida's 2023 reform shortened the general negligence period from four years to two for causes accruing after March 24, 2023 (ch. 2023-15). Subrogation files carry a limitation date as a task from the day of payment.

Finding Subrogation#

Subrogation potential is visible at FNOL: a rear-end collision with the insured in front, a police citation of the other driver, a product failure (a water heater, a supply line), a contractor's work, a utility. A triage rule flags the exposure, and the adjuster's job is to preserve evidence (the failed part, photos, the other party's insurer and policy number) before paying. Outbound tools like CCC's score claims for subrogation potential and assemble the demand package (estimate, photos, payments, proof of coverage). The signal also matters for the insured: an insured who will get their deductible back is an insured who should be told so.

Demands and Inter-Company Arbitration#

A subrogation demand to the responsible party's insurer states the loss, the liability facts, the amounts paid by coverage, and the insured's deductible if the insured asked for it to be included (below). The other insurer accepts, offers a compromise on liability (a 70/30 split), disputes damages, or denies. Between insurers that are members of Arbitration Forums, a disputed demand goes to inter-company arbitration under the program's rules instead of court; E-Subro Hub carries the demand and documents electronically and can move it into arbitration. At about 1.1 million disputes a year, this is a high-volume, document-driven process, and the claim system's part is the data: the demand, every response, the arbitration filing and decision, and the payment received.

Inbound demands are the mirror image: another insurer's demand against the insured's liability coverage, which is a third-party property damage exposure on the insurer's own claim with its own reserve and payment, priced against the insurer's own estimate history.

Deductible Recovery#

The insured's deductible is part of the loss the responsible party owes, so a subrogation recovery may be the insured's money too. Model 902 says insurers shall, "upon the claimant's request, include the first party claimant's deductible, if any, in subrogation demands," that recoveries "shall be shared on a proportionate basis with the first party claimant, unless the deductible amount has been otherwise recovered," and that no deduction for expenses may be made from the deductible recovery unless an outside attorney is retained, and then only "a pro rata share of the allocated loss adjustment expense." California makes inclusion automatic: "Every insurer that makes a subrogation demand shall include in every demand the first party claimant's deductible," and shares recoveries proportionately (10 CCR 2695.7(q)).

Worked Numbers: A Recovery With Comparative Fault

Mine. The insured's car is damaged in an intersection collision: $12,000 of damage, a $1,000 collision deductible, so the insurer paid $11,000. Arbitration finds the other driver 80% at fault.

The insured gets $800 of their $1,000 deductible back, bearing their 20% fault on it the same way the insurer bears 20% on its payment. If the insurer had retained outside counsel at a 25% contingency to collect, the fee is $2,400, and the deductible may bear only its pro rata share: 2,400 × 800 / 9,600 = $200, so the insured nets $600 and the insurer nets 8,800 − 2,200 = $6,600. Without outside counsel, nothing comes off the insured's $800; the insurer's own subrogation staff are its cost. If the insurer settles the demand at less than full value for its own reasons (a compromise on liability to close a batch), the insured's share is still computed on the settled amount, which is why some insurers credit the full deductible and absorb the difference; the rule to encode is the state's, and the system records which method it used on each recovery.

A Florida version of the same accident with the insured found 55% at fault produces no recovery at all under 768.81(6), and the deductible task closes with that reason.

Salvage#

When an insurer pays a total loss, it takes the damaged property (title to the car, the damaged inventory, the boat) and sells it; the proceeds reduce the loss. For vehicles, the salvage auction handles it end to end: pickup and advance charges for towing and storage, title clearance with the DMV (most states allow a sale only after a salvage title issues, and Copart says documents generally arrive 45 to 60 days after pickup), the auction, and remittance net of seller fees (Copart 10-K).

Worked Numbers: Net Salvage Proceeds

Mine, continuing the total loss in Auto Claims & Total Loss, where the salvage bid was $4,800. The car sells at auction for $4,800; the auction deducts $450 in seller fees and recovers $380 of towing and storage it advanced.

The net recovery is credited to the collision exposure's indemnity, so the exposure's net paid loss is 26,082.25 − 3,970 = $22,112.25. The insured has no share in salvage (they were paid the full value less the deductible), but if the insurer also recovers from the at-fault driver's insurer, the salvage proceeds reduce what is demanded, because the at-fault party owes the loss, not the payment.

Other Recoveries#

• Deductible collection. Commercial programs with large deductibles (workers' compensation and liability) have the insurer pay claims from the first dollar and bill the insured for the deductible; the receivable is a recovery against the exposure, secured by collateral.
• Reinsurance. The ceded share of a paid loss is recovered from reinsurers under the contract (Reinsurance Operations); a subrogation or salvage recovery on a ceded loss is shared back with the reinsurer in the same proportion.
• Overpayments and duplicates. A duplicate payment, a payment after a fraud finding (Fraud & SIU) or a payment a guaranty association or another insurer should have made, recovered from the payee.
• Contribution. Another insurer that covers the same loss (overlapping policies) owes its share under the other-insurance clauses.

Recovery Accounting#

A recovery is money in, against a prior payment, so it has to land where the payment was charged:

• Same exposure and cost type. A salvage recovery reduces indemnity on the collision exposure; recovered defense costs reduce DCC. Reported and paid losses are net of recoveries in statutory reporting and loss triangles.
• Same accident year, current accounting date. The recovery is booked in the period it is received, but it develops the accident year of the loss, which is how a 2026 recovery on a 2024 accident improves the 2024 year (Loss Reserving & Development).
• Anticipated or actual. The CAS reserving text notes some insurers set case reserves net of expected salvage and subrogation, while many track only actual recoveries; the system supports both with a separate anticipated recovery estimate, never by lowering the indemnity reserve silently.
• Shared parts are allocated. The insured's deductible share, the reinsurer's share and any attorney fees are allocations of the recovery, each its own row, so the gross received ties to the bank deposit and the nets tie to the ledgers.
• Closed claims stay closed. A recovery on a closed exposure posts without reopening the indemnity reserve; it may need a payment to the insured (the deductible share), which is a payment on the exposure with its own approval.

How to Build It#

These are deltas against The Core Data Model: claims, exposures, claim_payments, and salvage_titles (Auto Claims & Total Loss). This chapter defines recoveries, recovery_allocations and subrogation_demands.

CREATE TABLE subrogation_demands (         -- outbound and inbound, per exposure
  id                 UUID PRIMARY KEY DEFAULT uuidv7(),
  exposure_id        UUID NOT NULL REFERENCES exposures (id),
  direction          TEXT NOT NULL CHECK (direction IN ('outbound', 'inbound')),
  counterparty_party_id UUID NOT NULL REFERENCES parties (id),  -- the other insurer or party
  counterparty_claim_ref TEXT,
  amount_paid        BIGINT NOT NULL,       -- what the insurer paid, by coverage
  deductible_included BIGINT NOT NULL DEFAULT 0,
  deductible_rule    TEXT,                  -- '10 CCR 2695.7(q)', 'NAIC 902 8D on request'
  demand_amount      BIGINT NOT NULL,
  liability_pct_bp   INT,                   -- agreed or awarded share, basis points
  channel            TEXT NOT NULL CHECK (channel IN ('letter', 'e_subro', 'arbitration',
                       'litigation')),
  forum_ref          TEXT,                  -- arbitration case number
  limitation_date    DATE NOT NULL,         -- the insured's limitation period
  status             TEXT NOT NULL CHECK (status IN ('open', 'accepted', 'compromised',
                       'denied', 'in_arbitration', 'awarded', 'litigated', 'abandoned',
                       'collected')),
  sent_at            TIMESTAMPTZ,
  decided_at         TIMESTAMPTZ
);

CREATE TABLE recoveries (                  -- money in against prior payments
  id                 UUID PRIMARY KEY DEFAULT uuidv7(),
  exposure_id        UUID NOT NULL REFERENCES exposures (id),
  kind               TEXT NOT NULL CHECK (kind IN ('subrogation', 'salvage', 'deductible',
                       'reinsurance', 'overpayment', 'contribution')),
  cost_type          TEXT NOT NULL CHECK (cost_type IN ('indemnity', 'dcc', 'ao')),
  demand_id          UUID REFERENCES subrogation_demands (id),
  salvage_title_id   UUID,                  -- salvage_titles
  status             TEXT NOT NULL CHECK (status IN ('anticipated', 'received',
                       'reversed')),
  gross_amount       BIGINT NOT NULL,       -- as deposited, before allocations
  received_at        TIMESTAMPTZ,
  accounting_date    DATE,
  statement_line     TEXT,
  idempotency_key    TEXT NOT NULL UNIQUE
);

CREATE TABLE recovery_allocations (        -- who gets which part of a recovery
  id                 UUID PRIMARY KEY DEFAULT uuidv7(),
  recovery_id        UUID NOT NULL REFERENCES recoveries (id),
  to_party           TEXT NOT NULL CHECK (to_party IN ('insurer', 'insured_deductible',
                       'reinsurer', 'attorney_fee', 'vendor_fee')),
  amount             BIGINT NOT NULL,
  basis              TEXT NOT NULL,         -- 'pro rata 1000/12000', 'contingency 25%'
  reinsurance_contract_id UUID,             -- for reinsurer shares
  claim_payment_id   UUID REFERENCES claim_payments (id)  -- the refund to the insured
);

The allocation is computed when the recovery posts: the insured's share from the deductible and the state's sharing rule, any attorney fee charged pro rata, the reinsurers' shares from the cessions on the original payments, and the insurer's remainder; the allocations must sum to the gross. Net paid loss on an exposure is payments minus the insurer's and reinsurers' allocations, and gross-of-reinsurance figures exclude only the insured's and fees.

Design choices:

• A recovery points at its exposure and cost type, never at the claim, and dates its accounting period.
• Allocations are rows that sum to the deposit, so the deductible refund is visible and auditable.
• Every subrogation file carries its limitation date, computed from the loss date and the state's period, as a claim task.
• Waivers and statutory bars are checked at FNOL from the policy's waiver records and the state rules, before effort goes into a demand.

Auditing#

• Every demand with what was included (the deductible, by rule or request), each response, the arbitration filing and award.
• Every recovery with its gross, allocations and the payments it reduced, by exposure, cost type and accident year.
• Every deductible share paid to an insured, with the method (pro rata, full credit) and any fee charged against it.
• Every salvage sale with gross, fees, advance charges and net, tied to the title record.
• Abandoned subrogation with the reason (no liability, waiver, statutory bar, limitation, cost), because examiners ask why an insured's deductible was never pursued.

What This Means for the System You Build#

• Flag subrogation at FNOL and set a limitation-date task from the loss date.
• Include the insured's deductible in demands where the state requires it or the insured asks, and share recoveries proportionately.
• Charge outside collection costs to the deductible only pro rata.
• Post salvage net of fees and advance charges against the exposure that paid the total loss.
• Allocate every recovery to insurer, insured, reinsurers and fees, summing to the deposit.
• Credit recoveries to the accident year of the loss in the accounting period received.

References#

Law and regulation

• 10 CCR 2695.7, the deductible in every subrogation demand and proportionate sharing of recoveries
• N.Y. Ins. Law 5105, no-fault loss transfer limited to heavy and for-hire vehicles, with mandatory arbitration as the sole remedy
• Fla. Stat. 768.81, modified comparative negligence barring recovery above 50% fault
• Laws of Florida ch. 2023-15 (HB 837) (PDF), the two-year negligence limitation period, the comparative fault change, and their effective date

NAIC

• NAIC: Unfair Property/Casualty Claims Settlement Practices Model Regulation (#902) (PDF), Section 8D: the deductible in subrogation demands on request, proportionate sharing and expense deductions only for outside counsel

Standards

• Casualty Actuarial Society: Friedland, Estimating Unpaid Claims Using Basic Techniques (PDF), case reserves net of anticipated salvage and subrogation versus tracking actual recoveries

Filings

• Copart: Form 10-K for the year ended July 31, 2026, salvage pickup, advance charges, title timing, auctions, seller fees, insurer share of volume and competitors
• CCC Intelligent Solutions: Form 10-K for 2025, outbound and inbound subrogation tools

In practice

• Arbitration Forums, founding, membership, dispute and demand volumes, programs, Total Recovery Solution and E-Subro Hub