Principles of Risk Management and Insurance, 13th Edition

Principle of Subrogation

The principle of subrogation strongly supports the principle of indemnity. Subrogation means substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance.⁸ Stated differently, the insurer is entitled to recover from a negligent third party any loss payments made to the insured. For example, assume that a negligent motorist fails to stop at a red light and smashes into Megan’s car, causing damage in the amount of $10,000. If she has collision insurance on her car, her insurer will pay the physical damage loss to the car (less any deductible) and then attempt to collect from the negligent motorist who caused the accident. Alternatively, Megan ...