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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

Under the principle of subrogation in a non-life policy, which statement is correct after the insurer has paid a claim in full for a loss caused by a negligent third party?

After paying the claim, the insurer can step into the insured's position and recover from the negligent third party, but only up to the amount it paid. This prevents the insured from gaining twice and upholds the principle of indemnity.

  1. AThe insurer may recover from the third party, but only up to the amount it paidCorrect
  2. BThe insured may additionally sue the third party and keep the whole recovery
  3. CThe insurer acquires ownership of the third party's assets
  4. DSubrogation applies only to life insurance contracts

Explanation

Subrogation lets the insurer step into the insured's shoes to recover from the wrongdoer, limited to the indemnity paid, so the insured does not profit. Keeping a double recovery would breach indemnity. Subrogation is a feature of indemnity contracts, not life insurance.

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