Alabama Property and Casualty Practice Exam

Subrogation is an important legal principle in insurance that allows an insurer to step into the shoes of the insured after having paid a claim. By doing so, the insurer can pursue recovery from responsible third parties who are liable for the loss. This process ensures that the insurer can recoup costs associated with claims they paid out to their policyholders when those losses were caused by someone else's actions or negligence.

For instance, if an insured driver's vehicle is damaged in an accident caused by another driver, the insured's insurance company pays for the repairs. Through subrogation, the insurer can then seek reimbursement from the at-fault driver’s insurance company, effectively recovering the amount paid for the claim.

In contrast, the other options pertain to actions that do not define subrogation. Adjusting policy limits, changing coverage, or modifying premium rates are not inherent functions of subrogation. Instead, these are regulatory or administrative changes that an insurer might consider based on various factors, but they do not relate directly to the recovery of costs from third parties.