A common question we get asked at Nepean Brokers is ‘what is subrogation?’ In this blog we will outline the basics of subrogation and when it will be applicable.
Subrogation is where the Insurer is taking the legal place of the policyholder in recovering costs from a third party.
In virtually all general Insurance policies, and in the event of a claim, the Insurer who issues the policy may seek to exercise their right of subrogation where the Insurer believes that a third party is responsible for the claim occurrence, either partially or wholly, and accordingly that Insurer seeks to recover their costs from the third party.
Whilst general Insurance policies accord this right to the Insurer, the Insurer may not always exercise the right. This is known as a waiver of subrogation and usually occurs where there is no value in pursuing a third party for the recovery of costs.
Example of Subrogation:
Vehicle A driven by a third party collides with the rear of Vehicle B (the policyholder’s vehicle) which is stationary at a red light causing Vehicle B to be written off.
The Insurer of Vehicle B pays the policyholder (or replaces their vehicle) according to the terms and conditions of the policy, but then determines that the fault in this claim lies with the registered owner of Vehicle A.
The Insurer may choose to exercise their right of subrogation against either the registered owner of Vehicle A, or as is more usual, against the Insurer of Vehicle A.
(Note that it is usual, until settlement has been received from either the owner or Insurer of Vehicle A, that the policyholder of Vehicle B will be required to pay the excess applicable).
If say the owner of Vehicle A is both uninsured and has no funds, then the Insurer of Vehicle B may elect not to pursue the matter against that owner purely due to the fact that there may be little or no chance of recovering costs. In such an instance, the Insurer of Vehicle B can be said to be waiving their right of subrogation. Once waived, it is not usual for an Insurer to be able to seek recovery of costs at a later date.
For more information on subrogation or any Insurance policy questions please contact Nepean Brokers at 03 5982 2330.