Subrogation is best known as a concept of insurance law. It can be applied outside the law of insurance, although the general laws against maintenance and champerty would otherwise prevent such an arrangement. When an insurer is required to pay a claimant a sum of money, it is almost always allowed to sue in the name of the claimant against any person who was responsible for the loss. This concept allows an insurance company to sue on behalf of its insured if it is required to pay the insured for a loss caused by another person. However, it also allows an insurance company to recover against its own insured when it is required to pay a third party claimant under the authority of a statute, where otherwise the insured would not be covered for the loss. In most cases, the subrogated claim is fought between two insurance companies disputing who was ultimately responsible for the loss without putting a financial burden on the insured parties.
The other principle area of subrogation law is where payment is made on a guarantee, and the paying party becomes subrogated to the primary debt equal to the amount of the payment that they make. In most legal systems, the paying party is also subrogated to any security which they original creditor held for the debt.
Subrogation can also arise between consenting parties by contract.
However, subrogation is a general principle of law, and could in theory arise in any analogous situation where one party is compelled to discharge the debt or obligation of another.
The party seeking to enforce the rights of another is the subrogee. The party whose rights the subrogee is enforcing is the subrogor. The subrogee must usually sue the tortfeasor in the name of the subrogor. Standard insurance contracts require the insured to cooperate with their insurer in pursuing subrogation against third parties. If the insured refuses to cooperate, the insurer can sue the insured for breach of contract as well as the third party tortfeasor.
Subrogation in insurance contracts was originally thought to be based on an implied term in the contract of insurance, but in most common law jurisdictions, subrogation is an equitable remedy and is subject to all the usual limitations which apply to equitable remedies.[1]
Subrogation is generally considered in most legal systems to form part of the law of restitution by preventing the unjust enrichment, by preventing the subrogor from receiving funds from the subrogee and then still claiming the original sum of money from the tortfeasor/debtor.[2]
Insurance
In insurance there are three general cases:
Subrogation against third party
If, for example, an insured is injured in an assault, the insurer is required to pay out any insurance proceeds occasioned by the assault. However, the insurer is also allowed to sue the tortfeasor who committed the assault even though, because of the insurance, the victim suffered no damages that would allow him to recover against the tortfeasor himself.
Subrogation against insured
Most U.S. states require insurers to cover damages to innocent third parties caused by automobile accidents. For example, if a drunk driver strikes a pedestrian, the pedestrian may recover their damages from the insurer even though it may have been a condition of the policy that the insured not operate a vehicle while impaired, and would not have recovered damages if he had been the only person injured. In such a case, the insurer will be required to pay the pedestrian, but may sue its own insured to recover any money paid to the pedestrian.
Subrogation between insurers
When insured damage is clear, but fault is not, insurers are generally required to pay the proceeds to the insured party even when the right of subrogation is not clear. For example, two adjoining businesses are destroyed by a fire that arose out of negligence, but it is not immediately clear who was to blame. Both parties are entitled to recover from their insurers unless arson or gross negligence can be proved. However, the insurers may still continue to litigate over which party is at fault for the fire, and the successful insurer may recover its pay out from the unsuccessful insurer.
As it is common for health insurance to cover treatment for any injury, no matter how caused, health insurers often exercise their subrogation rights against persons they believe were responsible for the injury. Not infrequently, insured persons and their legal counsel do not consider the interests of the health insurer when settling lawsuits against tortfeasors, and in such a case the health insurance company may recover against the insured if a settlement effectively prevents them from recovering against the tortfeasor. However, for persons represented by counsel, this merely pushes the risk of recovery onto the insurers of lawyers.
Guarantees
Subrogation also exists in the law of suretyship: when a surety pays or performs on account of the principal's default, he ordinarily has the right to recover the amount of his payment or the costs of his performance from the principal, even in the absence of an express agreement by the principal to do so.