Right to Subrogation
Subrogation: Put Your Knowledge to Work for the Client
Page 3 of 4 Previous 1 2 3 4 Next View issue on one page
will apply the doctrine in practice. Generally speaking, they will address allocation in one of three ways:
1. The insurer is reimbursed first, from the net proceeds, for the full amount of the benefits paid to the insured; the insured is then entitled to any remaining balance. Costs and fees are borne by the insurance company, since often the recovery will not exceed the insurer's share.
2. The recovery is prorated between the insurer and the insured according to the percentage of recovery sought by each party in relation to the total loss. Costs and fees are prorated on the same basis.
3. The insured is reimbursed first, out of the recovery from the third party, for any loss that was not covered by
1. The insurer is reimbursed first, from the net proceeds, for the full amount of the benefits paid to the insured; the insured is then entitled to any remaining balance. Costs and fees are borne by the insurance company, since often the recovery will not exceed the insurer's share.
2. The recovery is prorated between the insurer and the insured according to the percentage of recovery sought by each party in relation to the total loss. Costs and fees are prorated on the same basis.
3. The insured is reimbursed first, out of the recovery from the third party, for any loss that was not covered by
insurance. The insurer is then entitled to be fully reimbursed for its payment to the insured. Anything remaining goes to the insured. Costs and fees are prorated, based on the recovery, unless otherwise agreed to before the litigation begins. The following scenario helps explain the three approaches.
The Trend
Obviously, insurers prefer the first approach, but such is clearly not the trend in the courts or in state statutes throughout the United States. Opponents stress that the insured paid a premium to have the benefits of the insurance policy provided, and that in collecting the premium, the insurance company agreed to bear the risk of loss to the extent stipulated in the policy. Theoretically, the premium —property invested—covered this
The Trend
Obviously, insurers prefer the first approach, but such is clearly not the trend in the courts or in state statutes throughout the United States. Opponents stress that the insured paid a premium to have the benefits of the insurance policy provided, and that in collecting the premium, the insurance company agreed to bear the risk of loss to the extent stipulated in the policy. Theoretically, the premium —property invested—covered this
risk. The prevailing feeling today is that allowing the insurer to be paid back before the damaged party is made whole does not properly align the risk of loss and is inconsistent with the principles of equity.
The trend is toward approach number three. The basis for this was set forth in Couch on Insurance 2d S. 61:20, which said, “Subrogation is an established branch of equitable jurisprudence, and equity requires that the insured be made whole before the insurer's right to subrogation.”
Approach number two actually represents a compromise between numbers one and three. The insured gives up some benefits by sharing the costs pro rata with the insurer. It is often the easiest place to start if the
The trend is toward approach number three. The basis for this was set forth in Couch on Insurance 2d S. 61:20, which said, “Subrogation is an established branch of equitable jurisprudence, and equity requires that the insured be made whole before the insurer's right to subrogation.”
Approach number two actually represents a compromise between numbers one and three. The insured gives up some benefits by sharing the costs pro rata with the insurer. It is often the easiest place to start if the
