CALA Subrogation & Recovery 1 — Questions and Answers
Question 1: What is the primary legal doctrine that allows an insurer to pursue a third party responsible for an insured's loss after the insurer has paid the claim?
- Indemnification
- Subrogation (Correct answer)
- Contribution
- Estoppel
Correct answer: Subrogation
Subrogation is the legal right by which an insurer, after paying a loss, steps into the shoes of the insured to recover damages from the responsible third party.
Question 2: Which of the following actions by an insured would most likely impair an insurer's subrogation rights?
- Filing a claim promptly
- Releasing the negligent third party from liability before the insurer is notified (Correct answer)
- Cooperating with the adjuster during investigation
- Providing a recorded statement
Correct answer: Releasing the negligent third party from liability before the insurer is notified
If the insured releases the responsible third party from liability without the insurer's consent, this act can bar the insurer from pursuing subrogation recovery.
Question 3: Under the 'make whole' doctrine applied in many states, when can an insurer pursue subrogation recovery?
- Immediately after issuing a payment to the insured
- Only after the insured has been fully compensated for all losses (Correct answer)
- After the insurer has recovered 50% of its payment
- When the third party admits liability
Correct answer: Only after the insured has been fully compensated for all losses
Under the make whole doctrine, the insurer cannot pursue subrogation until the insured has been fully compensated for all of their losses, including uninsured amounts.
Question 4: Which type of subrogation arises by operation of law rather than by contract?
- Contractual subrogation
- Equitable subrogation (Correct answer)
- Conventional subrogation
- Statutory subrogation
Correct answer: Equitable subrogation
Equitable subrogation arises by operation of law based on fairness principles, without requiring a specific contractual provision.
Question 5: What is the statute of limitations concern most critical when evaluating a subrogation claim?
- The date the insured purchased the policy
- The deadline by which the insurer must file suit against the responsible party (Correct answer)
- The time limit for the insured to file a first party claim
- The period for the insurer to deny a claim
Correct answer: The deadline by which the insurer must file suit against the responsible party
The statute of limitations sets the deadline by which the insurer must initiate legal action against the responsible third party or lose the right to recover.
Question 6: In a workers' compensation subrogation case where the injured worker sues the negligent third party and recovers a judgment, how are the proceeds typically distributed?
- The worker keeps 100% of the judgment
- The insurer recovers first, and the worker keeps any remainder (Correct answer)
- The proceeds are split evenly between the insurer and the worker
- The proceeds are paid to the state workers' compensation fund
Correct answer: The insurer recovers first, and the worker keeps any remainder
In most jurisdictions, the workers' compensation insurer has a lien on the third-party recovery and is reimbursed first, with the injured worker receiving any remaining funds.
Question 7: What document should an adjuster secure from the insured at the time of claim payment to protect the insurer's subrogation rights?
- A proof of loss form
- A loan receipt or subrogation receipt (Correct answer)
- A reservation of rights letter
- A non-waiver agreement
Correct answer: A loan receipt or subrogation receipt
A subrogation receipt (or loan receipt) acknowledges the payment and preserves the insurer's right to recover from responsible third parties.
CALA Subrogation & Recovery 1
What is the primary legal doctrine that allows an insurer to pursue a third party responsible for an insured's loss after the insurer has paid the claim?