Rhode Island Insurance Adjuster Exam

What is the legal term for the rights of an insurer to pursue recovery from a third party after paying a claim?

1. Subrogation

2. Indemnity

3. Deductible

4. Liability

The correct answer is: Subrogation

The correct term for the rights of an insurer to pursue recovery from a third party after it has paid a claim is subrogation. This legal concept allows the insurance company to step into the shoes of the insured once they have compensated them for their loss and to seek reimbursement from the party that was actually liable for the loss. Subrogation is critical because it helps insurers mitigate their expenses and keep premiums lower for policyholders, as they can recover some or all of the claims they have paid out. It also ensures that the party who is truly at fault for causing the loss is held accountable for their actions. In contrast, indemnity refers to the principle that insurance policies provide compensation for losses without allowing the insured to profit from their claims – it is about restoring the insured to the same financial position they were in prior to the loss. A deductible is the amount the insured must pay out of pocket before the insurer covers the remaining costs of a claim. Liability pertains to the legal responsibility for one's actions or damages caused, focusing on the obligation to compensate for damage rather than on the recovery of paid claims. Thus, subrogation distinctly relates to the insurer's right to recover costs after a payment has been made.