What legal term describes the action where insurers sue a third party after paying an insured claim?

The term that describes the action where insurers sue a third party after paying an insured claim is "subrogation." This legal principle allows an insurer to take on the rights of the insured in order to recover the amount they paid for a claim from a third party that is deemed responsible for the loss. Subrogation is important as it helps insurers mitigate their losses and keeps insurance premiums more affordable for policyholders.

When an insurer pays out a claim to its insured, they essentially step into the shoes of that insured regarding the claim against the responsible party. By pursuing the third party, the insurer aims to recoup the amount paid, ensuring that the financial burden doesn't fall solely on them. This mechanism also prevents policyholders from benefitting from their loss, which aligns with the principle of indemnity—ensuring the insured is restored to their financial position prior to the loss without profit from an insurance claim.

Given this context, other terms mentioned focus on different aspects of insurance relationships or mechanisms. Co-insurance typically refers to a policy provision where the insured agrees to bear part of the risk. Contribution involves the shared responsibility among multiple insurers for a single loss when more than one policy covers the same risk. Indemnity pertains to the compensation to restore the insured