CA CA Subrogation & Recovery Procedures 1 — Questions and Answers
Question 1: Subrogation in insurance allows the insurer to:
- Cancel the insured's policy after a large claim
- Step into the insured's shoes to recover losses from a negligent third party (Correct answer)
- Increase premiums following a paid claim
- Require the insured to pursue the responsible party personally
Correct answer: Step into the insured's shoes to recover losses from a negligent third party
Subrogation is the legal right of the insurer to pursue a third party that caused an insurance loss to the insured, after paying the insured's claim.
Question 2: Under California law, the insured must be made whole before the insurer can exercise subrogation rights. This is known as the:
- Made whole doctrine (Correct answer)
- Primary payor rule
- Comparative fault principle
- Indemnity exclusion
Correct answer: Made whole doctrine
California's made whole doctrine requires that the insured fully recover all their losses before the insurer can collect any subrogation recovery from the third-party proceeds.
Question 3: What is a 'waiver of subrogation' clause in an insurance policy?
- A clause allowing the insured to sue the insurer
- A clause where the insurer agrees not to pursue recovery against a specified third party (Correct answer)
- A clause that voids coverage if the insured is negligent
- A clause extending the policy's statute of limitations
Correct answer: A clause where the insurer agrees not to pursue recovery against a specified third party
A waiver of subrogation prevents the insurer from recovering losses from a named party, often required in construction contracts to protect general contractors.
Question 4: California's statute of limitations for a subrogation lawsuit based on property damage is generally:
- 1 year
- 2 years
- 3 years (Correct answer)
- 4 years
Correct answer: 3 years
Under California Code of Civil Procedure § 338, the statute of limitations for property damage claims, including subrogation, is three years from the date of loss.
Question 5: Which of the following actions by the insured can impair the insurer's subrogation rights?
- Filing a timely proof of loss
- Signing a release with the responsible third party before the insurer is reimbursed (Correct answer)
- Cooperating fully with the adjuster's investigation
- Providing all relevant documents to the insurer
Correct answer: Signing a release with the responsible third party before the insurer is reimbursed
If the insured settles with and releases the at-fault party before the insurer recovers its subrogation interest, it can extinguish the insurer's recovery rights.
Question 6: What is the primary purpose of a 'lien letter' sent by an insurer to a third-party tort defendant?
- To place a lien on the defendant's real property
- To assert the insurer's subrogation interest and notify the defendant of the claim (Correct answer)
- To initiate a lawsuit in civil court
- To request the defendant's insurance policy limits
Correct answer: To assert the insurer's subrogation interest and notify the defendant of the claim
A lien letter formally notifies the responsible party (or their insurer) that the paying insurer has a subrogation interest and intends to seek reimbursement.
CA CA Subrogation & Recovery Procedures 1
Subrogation in insurance allows the insurer to: