What does subrogation refer to in the context of insurance?

Subrogation in the context of insurance refers to the right of an insurer to pursue a third party that caused an insurance loss to the insured. After an insurance company pays for a loss suffered by the insured, it gains the right to "step into the shoes" of the insured to recover the amount paid from the responsible party. This mechanism helps ensure that the burden of loss is ultimately placed on the party who was liable for the damage, rather than the insurance company or the insured themselves.

This concept promotes fairness within the insurance system, as it helps to prevent the insured from receiving a double recovery (once from the insurance payment and again from the responsible third party). It serves both to alleviate the financial impact on the insurer and to discourage negligence.

The other options do not accurately describe subrogation. Transferring property ownership to the insurer does not capture the essence of subrogation, which is about recovering costs rather than transferring ownership. Legal actions against insurers involve disputes over policy conditions or claims, while agreements about liability concern the acknowledgment between parties regarding the responsibility for damages. None of these options encapsulate the fundamental principle of subrogation as effectively as the correct answer does.