Question

Harlon Hill's 2017 Lexus RX350 is insured by Allstate under a PAP. While stopped at a red light at Coit and Custer, he is hit from the rear by a drunk driver. Harlon is not injured, however, his car heavily damaged. The repair cost for Harlon's car is $5,000. Harlon has a $500 deductible for collision coverage. Harlon notifies Allstate of the accident and asks that Allstate pay the repair cost.

Allstate agrees to pay the repair cost (less deductible) and notifies Harlon that under the terms of the policy, he must cooperate with Allstate in pursuing subrogation.

a) Explain how the principle of subrogation operates under these facts.

b) How does subrogation support the principle of indemnity?

c) How does subrogation help to keep insurance rates affordable?

Answer 1

a)Principle of subrogation states that insurance company will pay for the damage caused to the insured person.Here in this case allstate is the insurance company which is paying for the loss caused to the harlon car.in this case insurance co.will pay $5000-$500=$4500.

b) As per the principle of indemnity insurance company pay only that much which insured has suffered the loss(not above the loss) so in subrogation also insurance company prevents insured from making profit by claiming twice for the loss including third party.

c) For example-fire loss occured due to defect in TV and the insured things are damaged,so the insurance company will pay all the damage and recover the same from the manufacturer of TV.So when insurance company recovers the amounts then those rates are affordable.