Page 82 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 5: Principles of Insurance

The Insured has a right in Tort to recover the damages from the individuals involved. The Notes
Insurers assume these rights and take action in the name of the insured and take his permission
before starting legal proceedings.
Another reason for seeking permission of the insured is that the Insured may be having another
claim which was not insured arising from the same incident which he may wish to include
because the law allows one to sue a person only once for any single event.

Contract: This can arise when a person has a contractual right to compensation regardless of a
fault then the Insurer will assume the benefits of this right.
Statute: Where the Act or Law permits, the insurer can recover the damages from Government
agencies like the Risk (Damage) Act 1886 (UK) gives the right to insurers to recover damages
from the District Police Authorities in respect of the property damaged in Riots which has been
indemnified by them.

Subject matter of Insurance: When the Insured has been indemnified and the property treated as
lost he cannot claim salvage as this would give him more than indemnity. Therefore, when
insurers sell the salvage as in the case of damaged cars, it can be said that they are exercising
their right of subrogation.

Subrogation – When?

According to common law the right of subrogation arises once the Insurers have admitted the
claim and paid it. This can create problems for the Insurers as delay in taking action could at
times hamper their chance of recovering the damages from the wrongdoer or it could be adversely
affected due to any action taken by the Insured. To safeguard their rights and to ensure that they
are in control of the situation from the beginning Insurers place a condition in the policy giving
themselves subrogation rights before the claim is paid. The limitation is that they cannot recover
from the third party unless they have indemnified the insured but this express condition allows
the insurer to hold the third party liable pending indemnity being granted.

!
Caution This principle is applicable only when the damaged property has any value after
the event causing the damage. The insurer can benefit out of subrogation rights only to the
extent of the amount he has paid to the insured as compensation.
Many individuals having received indemnity from the Insurer lose interest in pursuing the
recovery rights they may have. Subrogation ensures that the negligent do not get away scot free
because there is Insurance. The rights which subrogation gives to the Insurers are the rights of
the Insured and it places certain obligations on the Insured to assist the Insurers in enforcing
their claims and not to do anything which would harm the Insurers chances to recover losses.

Self Assessment

Fill in the blanks:
7. Subrogation means substituting one ………………………………for another.
8. The Insured has a right in ……………………………… to recover the damages from the
individuals involved.

LOVELY PROFESSIONAL UNIVERSITY 77