Alabama Property and Casualty Practice Exam

The insured's home is destroyed by a plumber with an out of control blowtorch. What is this process called when the company pays for the loss and then sues the plumber?

1. liberalization

2. subrogation

3. salvage

4. insurable interest

The correct answer is: subrogation

In this scenario, the process described is known as subrogation. Subrogation is a legal concept whereby an insurer, after compensating the insured for a loss, takes on the right to pursue recovery from a third party who caused that loss. This allows the insurance company to recover the amount it paid to the insured from the responsible party—in this case, the plumber who caused the damage with the blowtorch. When an insurer pays for the insured's loss, it effectively steps into the shoes of the insured to pursue any claims against the negligent party. The purpose of subrogation is to help prevent the insured from receiving a double recovery (once from the insurer and again from the responsible party) and to hold the responsible party accountable for their actions. This process plays a crucial role in the insurance industry, ensuring that claims costs can be controlled and that negligent parties are held responsible for their actions.