Other Than Life (OTL) Practice Exam

In relation to subrogation, what occurs after the insured's claim is paid?

1. Subrogation cannot be instituted

2. Subrogation vests in the insured

3. It does not apply to contracts of indemnity

4. It allows the insurer to retain liability

The correct answer is: Subrogation vests in the insured

When an insured has a claim paid by their insurance company, subrogation comes into play as a fundamental principle of insurance. Subrogation allows the insurer to step into the shoes of the insured and pursue recovery from any third party responsible for the loss. After the insurer pays the claim, the right of subrogation vests in the insured. This means that the insured's original rights against the party responsible for the loss are transferred to the insurer to the extent of the payment made. Thus, once compensation has been received by the insured, the insurer has the legal right to seek reimbursement from those responsible for the damages, effectively preventing the insured from receiving a double recovery for the same loss. This process is vital for maintaining the principle of indemnity, which ensures that the insured does not profit from their insurance while making it possible for the insurer to recover some of the costs associated with the claim. Other options do not adequately describe the mechanics or principles underlying subrogation related to payment of claims.