Question

While removing paint from Mr. White’s office, the decorators accidentally started a fire, which caused serious damage to the extent of $3,000,000. Mr. White has a fire insurance cover with UCC Insurance Group. Suppose that the insurance cover is adequate and UCC Insurance has full responsibility to Mr. White for the amount claimed. In order to avoid any inconvenience, Mr. White has decided to claim from his insurer, UCC Insurance. UCC Insurance has subsequently made a full claim payment to the insured, Mr. White.

i. Does subrogation apply in the above case and how would subrogation rights arise?

ii. Explain how subrogation supports the principle of indemnity.

Answer 1

i. Subrogation:-Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.

So,in the given case UCC Insurance has made full payment to insured.The decorators i.e third party has caused serious damage i.e an insurance loss to the insured i.e Mr. White.Now UCC can recover the amount from decorators.

ii. Subrogation supports the principle of indemnity since the insured does not profit from the loss. By giving up subrogation rights, the insured does not collect twice for the same loss, which supports the principle of indemnity.