What is the definition of subrogation in insurance?

Subrogation is a key concept in insurance that refers to the legal right of one party to step into the shoes of another party to pursue recovery of a debt or claim after they have paid that obligation. In the context of insurance, when an insurer pays a claim to their policyholder for a loss, the insurer can then seek to recover that amount from the party responsible for the loss. This mechanism not only helps insurers maintain financial stability by recouping costs but also holds the responsible party accountable for their actions.

The other options do not accurately capture the essence of subrogation. An agreement between parties to relinquish a claim would imply that the parties agree to drop any pursuit of compensation, which is contrary to the purpose of subrogation. Insurance coverage for loss due to collision specifically pertains to auto insurance with no relation to the recovery of costs from a liable third party. Lastly, the obligation of an insurer to pay for all claims does not describe subrogation; instead, it refers to the duty of the insurer to honor the terms of the policy. Thus, the definition provided by the correct answer accurately encapsulates the process and function of subrogation in the insurance realm.