Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsMedium
An insured has a standard property policy covering their commercial building. The policy contains a clause stating that if the insured suffers a loss and has the right to recover damages from another party, the insurer will acquire those rights after paying the claim. What is this clause called?
- AArbitration
- BSubrogation
- CSalvage
- DContribution
Show answer & explanationAnswer & explanation
Correct answer: B. Subrogation
Subrogation is the legal right of an insurer to recover from a third party who caused a loss after paying the insured. This prevents the insured from collecting twice for the same loss.
Why the other options are wrong
- A. Arbitration is a method of dispute resolution, typically between the insurer and insured, not a third party.
- C. Salvage refers to the insurer taking possession of damaged property after paying a total loss.
- D. Contribution relates to how multiple insurers share a loss, not recovery from a third party.
Subrogation
The legal right of an insurance company to seek recovery from a third party who was responsible for a loss, after the insurer has paid the insured for that loss.
- Prevents double recovery by insured
- Transfers insured's rights to insurer
- Common in liability and property insurance
Memory trick: Subrogation: Insurer steps in to get what's due.