Which of the following statements about subrogation is true?

Subrogation refers to the process by which an insurance company can pursue recovery from a liable third party after it has paid a claim to its insured. The correct answer highlights a critical aspect of subrogation – it prevents injured parties from collecting multiple damages for the same loss or injury. This means that if an insured party receives compensation from their insurer for a claim, they generally cannot also seek additional compensation from the party at fault, which serves to avoid double recovery. This principle of preventing multiple recoveries is fundamental to the insurance system, ensuring fairness and preventing unjust enrichment.

The other options do not accurately reflect the nature of subrogation. While subrogation does allow insurers to seek reimbursement, it does not grant full rights to policyholders nor is it optional; most policies include a subrogation clause as a standard practice to allow the insurer to recover losses from third parties. Furthermore, subrogation is a mechanism that helps insurers mitigate losses but does not directly reduce claims in the sense of lowering the payout to the policyholder. These nuances are essential for a thorough understanding of how subrogation functions within insurance claims.