Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsMedium
A tenant accidentally leaves a stove burner on, causing a fire that damages their rented apartment building. The landlord's property insurer pays for the damages. Subsequently, the landlord's insurer seeks to recover the amount paid from the tenant. This action by the insurer is an example of:
- ASubrogation
- BEstoppel
- CContribution
- DArbitration
Show answer & explanationAnswer & explanation
Correct answer: A. Subrogation
Subrogation is the insurer's right to step into the shoes of the insured and pursue any recovery from a third party who caused the loss, after paying the insured's claim. This prevents the insured from collecting twice and ensures the responsible party ultimately bears the cost.
Why the other options are wrong
- B. Estoppel is a legal principle preventing someone from asserting a right or fact inconsistent with previous conduct.
- C. Contribution refers to how multiple insurers share a loss when they cover the same property.
- D. Arbitration is a dispute resolution method involving a neutral third party making a binding decision.
Subrogation
The legal right of an insurer to pursue a third party that caused an insurance loss to the insured. This is done after the insurer has paid the insured's claim.
- Prevents the insured from collecting twice for the same loss
- Transfers the right of recovery from insured to insurer
- Supports the principle of indemnity
Memory trick: SUBROGATION lets the insurer CHASE the responsible party.