The right of Subrogation Explained

The subrogation literally means “the right of one person to stand before the law in the place of another”.  

The right of Subrogation is implied in all contracts of indemnity. In other words it is recognized in every indemnity insurance contract.

Why the right of subrogation?

Let us look at the illustration below.

Mr. Peter John has driven his car negligently and caused an accident causing damage to Mrs. Van Doo’s car. Then Doo requested money for damages from peter and also claimed from her insurance company.

If both avenues were open to Mrs. Doo, she would be able to receive double compensation for the same loss and it is also a path for her to make profit from the loss.

To prevent Mrs. Doo from profiting from her loss, the right of subrogation allows her insurance company to recover the loss having paid the loss to her from Mr. Peter.

However, the right of subrogation is usually defined as “the transfer of rights and remedies of the insured to the insurer who has indemnified the insured in respect of the loss”.   

Therefore, if an insured has a right of action to recover the loss from a party who is responsible for the loss, the insurer is entitled to recover the loss from third party if he has already paid for the loss to the insured.  In other word, the insurer cannot be subrogated to the insured’s right of action he pays the insured for the loss.

However, the right of subrogation arises from the principle of indemnity. Generally the right of subrogation operates automatically without having any express condition in the contract.

The marine insurance policies are subjected to the right of subrogation and even without containing any condition in the policy of the right; the marine insurer is entitled to the benefits of subrogation having paid the insured for losses.

But in practice, fire insurance policies usually contain express condition to the effect that the right of subrogation can be exercised by the insurer even before he makes the payment for the insured’s claim. This is because in such kind of policies, the immediate action against the third party who is primarily responsible for the loss will become more necessary in order to ensure the rights of recovery.   

On the other hand, personal accident insurance policies are not a contract s of indemnity and hence the right subrogation does not apply to this policy.  

However the subrogation is a common-Law concept and it has been designed to place ultimate responsibility of the damage upon the wrongdoer. But as a general rule, insurer does not have a right of subrogation against its own insured.

 For an instance, it was held by the court in Treciak v. Treciak  that the insurer was not entitle for the right of subrogation.  

 In this case, the wife set fire to the husband’s home, while going through a bitter divorce. The insurer paid the loss and filed a subrogation action against the wife.

But  the court held that the insurer stood in the shoes of its insured’ the husband as the parties were not yet divorced at the time of the incident, and thus ,the insurer was barred by the doctrine of inter spousal immunity from suing the wife to recover on its subrogation claim even though wife was Primarily responsible for the damage.

However, just as insured cannot profit from his loss, the right of subrogation does not allow the insurer to make profit from his losses as well. He is only entitled to recover the exact amount he has already paid to the insured.