What does "subrogation" mean in the context of insurance?

Subrogation is a key concept in insurance that refers to the insurer's right to step into the shoes of the insured to pursue recovery from a third party that caused the loss. When an insurance company pays a claim to the insured for a loss that was actually caused by someone else's negligence or wrongdoing, the insurer has the legal right to seek reimbursement from that third party. This process helps prevent the insured from receiving a windfall from both the insurance payout and any compensation received from the responsible party, ensuring that losses are ultimately borne by the party at fault.

The other options present different aspects of the insurance process that are distinct from subrogation. The insured's right to seek compensation for damages pertains to their claim rights, while the obligation of the insurer to pay all claims relates to the duty of care insurance contracts have towards their policyholders. The process of reviewing and rejecting claims involves the underwriting and claims management aspect of insurance, but it does not define subrogation.