Subrogation – What is it?

Subrogation – What is it?

Subrogation in its most common usage refers to circumstances in which an insurance company tries to recoup expenses for a claim it paid out when another party should have been responsible for paying at least a portion of that claim.

More specifically, subrogation is the legal technique under common law by which the insurer, steps into their Insured’s shoes, so they have the benefit of their rights and remedies against a third party who is liable.

Subrogation arises in policies of insurance, but the legal technique is of more general application. In each case, because the Insurer pays money to their Insured which otherwise another party would have had to pay. The law permits the Insurer to enforce their rights against that other party to recover some or all of what the Insurer has paid out.

Although the basic concept is relatively straightforward, subrogation is considered to be a highly technical area of the law.

Subrogation – is an Insurers right

The following is an example of a contractual clause in which one party has ‘signed away’ its rights against another:

“(Insured client A) hereby agrees to indemnify and hold harmless (another party B) in respect of any liability that (party B) incurs arising out of its contractual obligations contained in this agreement.”

You should always review your contractual arrangements to ensure that you haven’t ‘signed away’ an Insurer’s right to subrogation. You could be not only breaching the terms and conditions of your insurance policy but could be prejudicing the insurer’s position to make a legitimate recovery. If you have then you must disclose this fact to the insurer.

You should also check that you do not have any contracts or agreements where you have agreed to ‘hold harmless’ any of your clients or sub-contractors for loss (for which those parties might otherwise be responsible).

 Who can an insurer waive its right of subrogation against?

Notwithstanding the above, the insurer may waive its right of subrogation against:

  1. Any co-insured (including its directors, officers and employees); or
  2. Any corporation or entity (including its directors, officers and employees) owned or controlled by any insured or against any co-owner of the property insured.