March 04, 2025
The claims processing stage in an insurance contract is undoubtedly the most critical. The client is in a position of vulnerability as a result of loss and must be assisted efficiently and promptly to restore them to the financial position in which they were before incurring the loss. While the rights of the insured are paramount during the claims processing stage, the insurer’s rights post-settlement of a claim are often a topic of debate. The principle of subrogation in short-term insurance policies comes into play in quite an interesting manner after the insured party has been indemnified.
Being a corollary of the indemnity concept of insurance, subrogation in the legal context refers to when a party takes on the legal rights of another, especially substituting one creditor for another. It can also occur when one party takes over another’s right to sue. In an insurance contract, there is effectively a substitution of rights in the sense that the insured’s rights are placed on the part of the insurer, and the insurer receives compensation that would otherwise have been granted to the insured and can sue for said compensation. It is important to highlight that the nature of the rights do not change.