Insurance the right of Subrogation Explained

Lord Cairns, In Simpson VS Thompson, defined subrogation as :”A right founded on the well-known principle of law that where one person has agreed to indemnify another he will, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss”.

The doctrine of subrogation is a corollary to the principle of indemnity and as such applies to only fire and marine insurances. According to the principle of indemnity the insured can recover only the actual amount of loss caused by the peril insured against and cannot be allowed to benefit more than the loss suffered by him. In case the loss to the property insured has arisen by chance without any fault on anybody’s part, the insured can make the claim against the insurer only.

In case the loss has arisen out of tort or mischief by some third party, the insured becomes entitled to proceed against both the insurer as well as the wrongdoer. But since the contract of insurance is a contract of indemnity, the insured cannot be allowed to recover from both and thereby make a profit from his insurance claim. He can make the claim against either the insurer or the wrongdoer. If the insured elects to be indemnified by the insurer, the doctrine of subrogation comes into play and as a result the insurer shall be subrogated to all the rights and remedies of the insured, against third parties in respect of the property destroyed or damaged.

Thereon, the insurer after indemnifying the insured for his loss in full, steps into the shoes of the insured and is subrogated to all the alternative rights and remedies which the insured has against the third persons, until he (the insurer) recoups the amount he has paid under the policy. In case something more is recovered under subrogation rights the excess shall belong to the policy-holder because the insured is entitled to the assured rights in respect of the subject matter insured, insofar as he has indemnified the assured.

The following points are worth noting in connection with the doctrine of subrogation:

1. This doctrine will not apply until the insured has recoverd the full indemnity in respect of his loss from the insurer.If the amount of the insurance claim is less than actual loss suffered, the assured can keep the compensation amount received from any third party with himself to the extent of deficiency, and if after full indemnification there remains some surplus he will hold it in trust for the insurer, to the extent the insurer has paid under insurance policy.

2. The insured should provide all such facilities to the insurer which may be required by the insurer for enforcing his rights against third parties. Any action taken by the insurer is generally in the name of the insured , but the cost is to be borne by the insurer.

3. The insurer gets only such rights which are available to the insured. He gets no rights superior than the assured . As such the insurer can recover under this doctrine, only that which the assured could himself have recovered.