Conceptin The insurance contract
Drill6 items
Subrogation: how the insurer steps into the insured's shoes
Subrogation is the insurer's right, once it has paid a claim, to take over the insured's right to recover from whoever caused the loss. It keeps the insured from being paid twice for one loss and moves the cost to the party at fault.
Stepping into the insured's shoes
A space heater with a defective thermostat starts a fire in an insured's den. The homeowners insurer pays the claim, then sues the manufacturer in the insured's place, holding exactly the rights the insured had. If the insured could also sue and keep that recovery, one loss would be paid twice, which indemnity forbids.
The 2011 HO-3 condition is short. An insured may waive in writing, before a loss, all rights of recovery against any person. If not waived, the insurer may require an assignment of those rights to the extent it has paid, and the insured must sign the papers and cooperate. It does not apply to Coverage F or to Damage to Property of Others.
The PAP 2018 version, Our Right To Recover Payment, adds the duty that decides these disputes: the person paid must do nothing after the loss to prejudice the insurer's rights, and anything they recover from someone else is held in trust and repaid. One carve-out matters on personal auto policy items: under Part D there is no subrogation against a person using the covered auto in the reasonable belief they were entitled to.
Subrogation is a right the insurer holds after paying; the contract traits on the insurance contract page describe the policy itself. The aleatory contract page sorts those traits one by one.
Three parties, one recovery
What the insured may sign, and when
- Before the loss
A written waiver is allowed
A lease in which landlord and tenant give up recovery against each other, signed before anything happens, is permitted by the 2011 HO-3.
- The loss
The rights freeze
From this point the insured must do nothing to prejudice the insurer's recovery.
- After the loss
A release puts the claim at risk
Letting the party at fault off the hook gives away the very right the insurer would have taken over.
- After payment
The insurer recovers
Under the PAP 2018, money the insured collects directly is held in trust for the insurer and repaid.
Subrogation and two neighbors
| Point | Subrogation | Salvage | Contribution |
|---|---|---|---|
| What is recovered | The insured's claim against a third party | The damaged or recovered property | A share of the loss |
| From whom | The party at fault | Whoever buys the property | Another insurer on the same loss |
| Needs someone at fault | Yes | No | No |
| Purpose | No double recovery | Lower the net cost of a paid loss | Split one loss between policies |
Who recovers what, from whom
0 of 6 answered · 0 right
Work from the policy wording on this page: who was paid, who caused the loss, and what the insured signed, and when.
Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.
- Item 01
An insurer pays its insured for fire damage caused by a negligent contractor and then sues the contractor to recover what it paid. The insurer is exercising its right of:
- AArbitration is a way to resolve disputes, not a right to recover from a third party.
- BContribution is how two insurers of the same loss share it.
- CCorrect: subrogation transfers the insured's right to recover from the responsible party to the insurer once it pays.
- DIndemnity is the principle of restoring the insured without profit, not the right to sue the contractor.
- Item 02
Under the 2011 ISO HO-3, which statement about subrogation is CORRECT?
- AWaiving recovery rights after a loss prejudices the insurer and can jeopardize the claim.
- BSubrogation exists to prevent a double recovery, not to allow one.
- CCorrect: the 2011 HO-3 lets an insured waive recovery rights in writing before a loss, such as in a lease.
- DSubrogation applies to property losses as well as liability claims.
- Item 03
A neighbor's careless burning of leaves damages an insured's garage. Before filing a claim, the insured signs a release freeing the neighbor from all liability. What can the insurer do?
- ACorrect: the insured must do nothing to impair subrogation, and releasing the neighbor destroyed the recovery the insurer would have taken over.
- BCanceling later doesn't fix anything; the issue is that the insured impaired subrogation.
- CNo 50% rule exists for impaired subrogation.
- DThe insurer can't sue a party the insured has already released.
- Item 04
A contractor's contract with a property owner says the contractor's auto insurer may not seek recovery from the owner after paying a claim. Which endorsement does this?
- AAn additional insured endorsement gives the lessor coverage under the policy, not a bar on recovery.
- BCorrect: a waiver of subrogation (waiver of transfer of rights of recovery) gives up the insurer's right to recover from the named party.
- CA designated insured endorsement gives the owner coverage, not a bar on recovery.
- DPrimary and noncontributory sets how the policy shares with the owner's own insurance.
- Item 05
After paying an insured the full value of a stolen car, the insurer recovers the car and sells it. The insurer is entitled to the proceeds because of its:
- ASubrogation is a right to recover from a negligent third party, not to sell recovered property.
- BAppraisal settles disputes over the amount of loss.
- CThe abandonment clause says the insurer need not accept abandoned property; it doesn't give the insurer the proceeds.
- DCorrect: after paying a total loss, the insurer may take title to the recovered property and sell it, which is salvage.
- Item 06
Omar's insurer pays his collision claim, then recovers that payment from the at-fault driver's liability insurer. Which statement about this recovery is CORRECT?
- AContribution is how insurers covering the same loss share it; here the at-fault driver's insurer did not insure Omar's car.
- BCorrect: subrogation passes Omar's right of recovery to his insurer, so he cannot be paid twice for the same damage.
- CSalvage is the insurer's right to the damaged property after paying for it, not a recovery from the party at fault.
- DInsurers may use arbitration to settle a disputed recovery, but nothing requires it; the right itself is subrogation.
Subrogation in plain terms
Does subrogation apply to liability coverages?
Yes, wherever the insurer pays and someone else is responsible, property and liability alike. The 2011 HO-3 switches it off for medical payments to others (Coverage F) and damage to property of others.
Is subrogation the same thing as indemnity?
Indemnity is the goal: restore the loss, no profit. Subrogation is one of the tools that serves it, alongside insurable interest and actual cash value.