Illustrative examples of subrogation in insurance

Illustrative example of legal right of subrogation in insurance.

Case 1.

Mr. Playitsafe insured his residential house against fire for $10,000,000 with Insurance X. During the period by which the policy is in effect, Mr. Pyromania, the arch-enemy of Mr. Playitsafe burned the latter’s house. Mr. Playitsafe claims from the insurance company the amount of the policy and the latter paid the former. In this case, the right of Mr. Playitsafe (the assured) against the wrongdoer (Mr. Pyromania) is transferred in favor of the insurance company by operation of law. Hence the insurance company can demand indemnity from the wrongdoer.

The law does not allow the insured to claim both from the insurer and the wrongdoer. Otherwise, the insured will gain or benefit from the happening of the event insured against. Insurance contracts are based from the principle of indemnity.

Another illustrative example of legal right of subrogation in insurance

Case 2.

Mr. Right insured his life for $1M with Insurance Company X. During the period by which the policy is in effect, Mr. Right was killed by Mr. Wrong. The beneficiaries of Mr. Right claimed the $1M from the Insurance Company X. After effecting payment by the insurance company to the beneficiaries of Mr. Right, the former sued Mr. Wrong for recovery of the $1M contending that it acquired the rights of the beneficiaries of Mr. Right by way of legal subrogation. Is the contention of the insurance company with merit?

The contention of the insurance company, in this case, is bereft of merit because the right of subrogation applies only to property insurance but not to life insurance. It is based on the rationale that human life is priceless and therefore, no recovery from a third party can be deemed adequate to compensate the insured’s beneficiary. Life insurance contracts are not contracts of indemnity.