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Subrogation: An Insurer’s Rights
Subrogation is broadly defined as the substitution of one person in the place of another with reference to a lawful claim or right.
WHAT IS A SUBROGATION ACTION?
For purposes of the insurance industry, the insurer stands in the shoes of the insured and may assert only those rights held by the insured against any culpable third party. Thus, a subrogee (the insurance company) merely succeeds to the legal rights or claims of a subrogor (the policy holder) and as defined within the subrogation provision in the insurance policy. If an property damage accident occurs, for example, at a jobsite during construction, the insurance company will send an adjuster to the field to evaluate the loss. If the loss is covered by the policy, the insurance company would pay the policyholder. If after tender of such payment, the insurance company determines the reason for the accident was a collapse due to poorly designed steel structure, the insurance company might be able to maintain an action, in the policyholder’s name, against the architect or the structural engineer, among potentially others, to the extent of their payment to the insured. This is just one of many examples where an insurance company might be able to recover after paying the policyholder. This right of the insurance company to recover is known as “subrogation.”
GOALS AND PURPOSE
The primary goal of subrogation is to obtain reimbursement for the subrogee for payments made by it. The purpose of subrogation is broad enough to include every instance in which one person, not acting as mere volunteer or intruder, pays a debt for which another is primarily liable. Subrogation is intended to provide relief against loss and damage to a meritorious creditor who has paid the debt of another. Other goals and purposes include enforcement of contractual rights, restitution, observing good conscience, and avoiding double recoveries by placing the burden of debt upon the person who should bear it. Ultimately, subrogation seeks to impose responsibility for a wrong or loss on the party who ought to bear it.
TYPES OF SUBROGATION
There are three types of subrogation recognized in the law: statutory, contractual, and equitable subrogation. Although the purpose of all three forms is the same, the rights of the parties and the outcome of a dispute can potentially be vastly different depending on the source of the subrogation rights. Accordingly, it is extremely important to identify where the subrogation rights, if any, arose early in a dispute in order to reach a favorable outcome.
We will expand on the topic of subrogation in future blogs, so please check back next week for an in-depth review of the different types of subrogation.