The broad nature of insurance means that you could have different parties to consider in an insurance claim. This includes the insurer, the insured, and other third parties.
As a result, sometimes damages might be incurred by the insured which, although covered in his policy, resulted from the recklessness of a third party.
In such a situation, they could invoke the insurance right of subrogation, allowing the insurer to pursue a compensation claim from the third party. This article contains all you need to know about insurance subrogation.
What is insurance right of subrogation?
Insurance rights of subrogation is a term that describes the right of an insurer to legally demand compensation from a third party.
Just like the word subrogation means, it refers to the practice of legally substituting one party for another.
Most times, it is the insurer taking the place of the insured and demanding legal compensation from a third party.
Doing this gives them the legal right to collect a debt or damages on behalf of the insured and gives them access to the full rights of the insured.
Insurance companies use the insurance right of subrogation to recover the claim paid to the insured from the third party that caused the incidence. It’s simply a way for insurance companies to recoup the amount spent on claims from those who caused it. They mostly include the rights in the policy contract of the insured.
How does the insurance rights to subrogation work?
Like we earlier said, the insurance rights of subrogation consist of three parties. This includes the insurer, insured (Policymaker), and a third party responsible for damages. The insurance right to subrogation usually kicks in when the insurer pays out a claim to the insured. On receipt of the claim by the insured, the insurer can start the subrogation process by demanding the claim paid from the third party. If covered by an insurer, the third-party responsible for damages is represented by the insurance company.
A practical approach to insurance rights of subrogation
David and Mark had a car accident. Because of this accident, David’s car was severely damaged and required N100,000 for repair. Lucky for him, he insured his car against all the damages incurred. He reaches out to his insurance company immediately, and they cover the payment and fix the car. After doing this, however, the insurance company launched an investigation into the incidence and discovered Mark to be at fault for the accident.
This discovery allows the insurance company the insurance rights of subrogation, to sue Mark and make him pay for the damages they had to cover for David. Therefore, the insurance company would sue Mark, on David’s right to damage compensation, and recoup their N100,000 paid to David.
However, if they insure mark against such damages, his insurer would represent him.
What are the rights of an insurer in the insurance rights of subrogation?
The insurer has certain rights when enacting the law of subrogation. These rights are:
- On payment of a claim to the insured, an insurer may stand in place of the insured and demand reimbursement on the sum of claim paid from the third party. During this time, the insurer benefits from the full rights of the insured. It is basically like the insured suing the third party directly.
- Also, the insurer has the right to prosecute a suit against the wrongdoer for recovery of its expenditure. This is only possible after the full claim amount has been paid to the insured.
What is a waiver of the insurance rights of subrogation?
A waver of the insurance rights of subrogation occurs when the insured surrenders the right to enact subrogation. On doing so, the insurer also waves its rights to seek subrogation against third party offenders. This term has to be included in the policy contract of the insured, and the insurer usually charges extra for it.
The insurance rights of subrogation prevent recklessness on the side of a third party; if not, it would hold them accountable for damages. Although present in most contract policies, they can waver for a fee. The insurance rights of subrogation are one of the foundational structures that ensure the accountability of all parties.