The doctrine of subrogation refers to the right of the insurer to stand in the place of the insured, after settlement of a claim, in so far as the insured’s right of recovery from an alternative source is involved.
If the insured is in a position to recover the loss in full or in part from a third party due to whose negligence the loss may have been precipitated, his right of recovery is subrogated to the insurer on settlement of the claim.
The insurers, thereafter, recover the claim from the third party. The right of subrogation may be exercised by the insurer before payment of loss.
Essentials of Doctrine of Subrogation
(i) Corollary to the Principle of Indemnity
The doctrine of subrogation is the supplementary principle of indemnity. The latter doctrine says that only the actual value of the loss of the property is compensated, so the former follows that if the damaged property has any value left, or any right against a third party the insurer can subrogate the left property or right of the property because if the insured is allowed to retain, he shall have realised more than than the actual loss, which is contrary to principle of indemnity.
(ii) Subrogation is the Substitution
The insurer, according to this principle, becomes entitled to all the rights of insured subject matter after payment because he has paid the actual loss of the property.
He is substituted in place of other persons who act on the right and claim of the property insured.
(iii) Subrogation only up to the amount of payment
The insurer is subrogated all the rights, claims, remedies and securities of the damaged insured property after indemnification, but he is entitled to get these benefits only to the extent of his payment.
The insurer is, thus, subrogated to the alternative rights and remedies of the insured, only up to the amount of his payment to the insured.
In the same way if the insured is compensated for his loss from another party after he has been indemnified by his insurer he is liable to part with the compensation up to the extent that the insurer is entitled.
In one, U.S. case it was made clear “If the insurer, having paid the claim to the insured, recovers from the defaulting third party in excess of the amount paid under the policy, he has to pay this excess to the insured though he may charge the insured his share of reasonable expenses incurred in collecting.
(iv) The Subrogation may be applied before Payment
If the assured got certain compensation from third party before being fully indemnified by the insurer, the insurer can pay only the balance of the loss.
(v) Personal Insurance
The doctrine of subrogation does not apply to personal insurance because the doctrine of indemnity is not applicable to such insurance.
The insurers have no right of action against the third party in respect of the damage.
For example, if an insured dies due to the negligence of a third party his dependent has right to recover the amount of the loss from the third party along with the policy amount.
No amount of the policy would be subrogated by the insurer.