Subrogation

Introduction

In the area of insurance law, the doctrine of subrogation can be best described as an insurer claiming against a third party for an insured loss suffered by an insured person. The claim against the third party would be on behalf of the insured and not in the insurer’s capacity. The doctrine is included as a clause in most, if not all modern-day insurance policies and is used as a mechanism to help insurance companies recoup monies paid out when their client was not at fault for the losses suffered.

As an example, Mrs A’s vehicle is insured by a company called Insurex. While out driving one day, Mrs A is hit by a vehicle driven by Sam, who is entirely responsible for the collision as a result of his negligence. Mrs A then claims damages from Insurex who pays out her claim. However, since Mrs A was not to blame, she would rightfully be able to claim from Sam any damages relating to the collision. Since Insurex has already paid out Mrs A’s claim, they would now have indemnified her against any losses suffered. As per the insurance contract, subrogation can now occur since there is an insured loss claimed for by the insured.

Simply put, Mrs A had agreed to subrogation of her claims, therefore transferring her right to claim damages from the third party to Insurex. The doctrine of subrogation would, therefore, prevent Mrs A from being unduly double compensated by both Insurex and Sam for her damages suffered. Instead, she will only claim from Insurex. The company will then be able to exercise subrogation by claiming the monies paid to the insured from the third party responsible, in this case, Sam.

Requirements for Subrogation

In order for subrogation to occur, a few requirements need to be met.

1. There needs to be a valid insurance contract in place.

The contract entered into between the insurer and the insured needs to be one that is valid as per the standard requirements of a valid contract. It normally also includes a clause referencing subrogation as enforceable (generally at the will of the insurer).

2. The insurer must have performed fully under said contract.

In order to make use of the doctrine of subrogation, the insurer must have performed fully in terms of any obligations as per the contract. These obligations would refer to paying out any claims if they are valid or repairing any goods where necessary.

3. Insured’s loss must have been fully indemnified.

The insured would need to be fully indemnified for loss. Although, this requirement has not been enforced as steadfast, as claims that provide partial indemnity or cover for the total loss incurred have still been eligible for subrogation. The consensus is that as long as the insured has not been over-compensated, the doctrine will be valid and enforceable.

4. Insured’s rights must be susceptible to subrogation.

This requirement would mean that the right of the insured must be one relating to a claim for losses or damages against a third party that is under the insurance cover.

5. Subrogation must not be excluded.

The insurance contract must not include a provision that excludes the use and inclusion of the doctrine as part of the cover.

Conclusion

If the above requirements are met, subrogation will be an option available to the insurer once a claim for loss or damages has been paid out to an insured person. The use of the doctrine to formally claim from a third party is at the discretion of the insurer and will not always be enforced.

Contact SchoemanLaw Inc for all your insurance law needs.