What is Subrogation and why is it important?  

In simple terms, subrogation means the substitution of an individual or set of individuals by another. This concept is mainly used in debt or insurance claims. In this concept, if an individual has received claims from an insurer for the losses of property or articles, then the title and ownership of the damaged property or articles are shifted to the insurance company. The insurance company can also sue the third party that was responsible for the damage. So, subrogation is the right for an insurance company to legally take on a third party that caused an insurance loss to the insured.

The insured individual has to deliver papers and instruments that are vital to secure these rights.

Subrogation in Indian Law

The Indian law allows the insurer to own the rights of the property after compensating for the losses of it. The insurer is not allowed to receive the compensation from the third party for more than what it has paid to the insured individual. This means if an insurance company has paid Rs. 2 lakh to a policyholder in case of a car accident, then the company cannot get more than Rs. 2 lakh as compensation from the wrongdoer. 

This doctrine comes with multiple limitations. It is not applicable to the personal accident and life policies. Therefore, it is mainly associated with property and casualty insurance. The insurer is supposed to pay the compensation to the policyholder before it can claim subrogation. In the legal system, there is no defense against the principle of subrogation.

The principle of subrogation is often confused with the principle of contribution. In the concept of contribution, the aim is to distribute the loss if the individual has taken insurance policies from different insurers for same goods. In subrogation, the loss is transferred from one individual to another.

Examples of Subrogation

Let’s understand the concept of subrogation with these two examples:

  • Stolen Car

In case you have parked your car at a specific place and it gets stolen. You will get a full claim from the insurance company as per your policy. For getting the claim, you have to sign a letter of subrogation. This means, you lose the rights of the lost car or its ownership, as these are transferred to the insurance company. In case the car is actually found in the future, the insurer will be the car’s owner.

  • Destruction of House

Suppose you insured your house for Rs. 15 lakh. The house gets destroyed due to some inappropriate action of your neighbour Mr. Ajay. You will receive the compensation of Rs. 15 lakh from the insurance company. In this scenario, the insurer can file a lawsuit against Mr. Ajay for Rs. 15 lakh.


Additional Reading: Claim Process For Health Insurance From Multiple Insurers!


Importance of Subrogation

Now, you might be thinking that if this concept is associated with the insurance providers, how it can benefit the policyholders. Well, it is indirectly beneficial for the policyholders. The money recovered through the process of subrogation goes to the profits of the insurance company. This is why some companies have an effective subrogation department. An active subrogation team lets the company perform better than their counterparts. As a result, the company starts offering lower premiums to its customers. Several additional benefits are also included in the packages.

Conclusion

A lot of individuals are unaware of this clause while purchasing the policy, which often creates a conflict at later stages. Therefore, it is important to understand this concept before buying the policies. The individuals can also discuss the clause with customer support representatives to get a better idea of the same.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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