Under what condition does 'subrogation' take place?

Subrogation occurs when an insurer pays a claim on behalf of the policyholder and then seeks to recover those costs from a third party that may have been responsible for the loss. This process allows the insurer to step into the shoes of the insured after making a payment, enabling them to pursue reimbursement from the party at fault. This is a critical concept in insurance as it helps insurers mitigate losses and maintain the principle that the insured should not profit from a claim. By recovering these costs, the insurer can keep premiums more stable for all policyholders.

The other options do not accurately describe the process of subrogation. Cancellation of a policy does not involve any claims being processed or recovered. A dispute regarding a claim indicates a differing opinion between the insurer and the policyholder regarding coverage or compensation, which is unrelated to the recovery of costs from a third party. Lastly, while coverage by multiple policies can involve complexities in claims, it does not pertain directly to the subrogation process itself, which specifically involves the recovery of costs after a claim has been settled.