CALA Subrogation & Recovery 2 — Questions and Answers
Question 1: Under which circumstance is an insurer generally NOT entitled to pursue subrogation?
- The third party was negligent
- The loss was caused by the insured's own negligence (Correct answer)
- The third party has insurance
- The loss involved a commercial vehicle
Correct answer: The loss was caused by the insured's own negligence
Subrogation requires a responsible third party; if the loss was caused by the insured's own negligence, there is no third party to subrogate against.
Question 2: What is 'contribution' in the context of insurance recovery?
- The premium paid by the insured
- The right of an insurer that has paid a claim to seek reimbursement from other insurers covering the same loss (Correct answer)
- The deductible applied to a claim
- The insured's share of a coinsurance penalty
Correct answer: The right of an insurer that has paid a claim to seek reimbursement from other insurers covering the same loss
Contribution allows an insurer that has paid more than its proportionate share of a loss to recover the excess from other insurers that also covered the same risk.
Question 3: Which element is NOT required to establish a valid subrogation right?
- The insurer must have paid the claim
- The insured must have suffered a covered loss
- The third party must be insolvent (Correct answer)
- A third party must be legally responsible for the loss
Correct answer: The third party must be insolvent
Third-party insolvency is not a requirement for subrogation; however, it may affect the practical ability to recover funds.
Question 4: A 'waiver of subrogation' clause in a contract typically benefits which party?
- The insurer paying the claim
- The insured filing the claim
- The third party identified in the contract (Correct answer)
- The state regulatory authority
Correct answer: The third party identified in the contract
A waiver of subrogation clause in a contract protects the identified third party (e.g., a contractor or tenant) by preventing the insurer from recovering against them after paying a claim.
Question 5: What is the most common method used to apportion a subrogation recovery between the insurer and the insured when the insured had an uninsured loss (e.g., a deductible)?
- First-in, first-out rule
- Pro-rata apportionment based on respective losses (Correct answer)
- The insurer retains the full recovery
- The insured retains the full recovery
Correct answer: Pro-rata apportionment based on respective losses
Many courts and insurers use pro-rata apportionment, dividing the recovery proportionally based on the insurer's payment versus the insured's uncompensated loss.
Question 6: When an adjuster identifies strong subrogation potential, what is the FIRST step that should be taken?
- File suit against the responsible party immediately
- Preserve evidence and document the cause of loss thoroughly (Correct answer)
- Settle the claim at a reduced amount
- Notify the state insurance department
Correct answer: Preserve evidence and document the cause of loss thoroughly
Evidence preservation is the critical first step because subrogation cases depend on proof of negligence, and evidence can be lost or destroyed quickly.
Question 7: Which of the following best describes 'lien subrogation' in a health insurance context?
- The insurer pays the provider directly and bars the insured from collecting
- The health insurer asserts a right to be reimbursed from any third-party personal injury recovery the insured receives (Correct answer)
- The insurer places a lien on the insured's property as collateral
- The insurer subrogates against its own policy for overpayment
Correct answer: The health insurer asserts a right to be reimbursed from any third-party personal injury recovery the insured receives
In health insurance lien subrogation, the insurer asserts a lien on any third-party settlement or judgment the insured receives, entitling it to reimbursement of benefits paid.
CALA Subrogation & Recovery 2
Under which circumstance is an insurer generally NOT entitled to pursue subrogation?