Subrogation and the policyholder’s duty

Everybody buys an insurance policy for protection – the right to recovery when the unforeseen happens.

However, insurance policies also extend entitlements to the insurer.  When insuring property against physical damage, the insurer has the right of subrogation.

In its most common usage, subrogation refers to a situation where an insurance company attempts to recover what it has paid out, by going after the party responsible for the damage.  (And the insurer may also recover what is owed to the policyholder by way of deductibles, etc. as well.)

Example:  a negligent tenant falls asleep while smoking in bed, causing interior damage to an apartment – a property loss to the landlord.  In paying the claim, the policy provides for the landlord’s insurer to assume the landlord’s right of subrogation against the tenant.

What many policyholders don’t know is this: the insurer has a legally enforceable contractual right to recover against a responsible party.  And anything the policyholder does to prevent that recovery, can compromise the policyholder’s recovery under their own policy.

But obviously not every incident of property damage is the fault of someone who can be sued.  In fact, much of the significant property damage around the world so far this year has resulted from natural disasters: earthquakes, tornados, hurricanes, and flooding.  Such events are legally referred to as “acts of God”.

You don’t have to be a theologian to conclude there is not much chance of subrogation there.

Tags: claims, coverage, damage, insurance, Liability, Property, subrogation