Subrogation
Subrogation: how an insurer that has paid a claim takes over the insured's rights against the person responsible, why this follows from indemnity, how any recovery is shared, and what the insured must do to keep those rights alive.
What it is
Subrogation is the right of an insurer, after paying a claim, to step into the shoes of the insured and recover the amount paid from the third party who is legally responsible for the loss. It uses the rights the insured already had against that person.
The principle is a corollary of indemnity. Suppose a loss is caused by someone else's fault. Without subrogation the insured could collect from the insurer and then again from the wrongdoer, and so profit from the loss. With it, the insured is paid once, and the cost is carried back to the person who caused it.
When it arises and how far it goes
The insurer's right to recover arises once it has paid the claim. It can recover only up to the amount it paid. If the recovery from the third party is larger than that, the surplus belongs to the insured.
Recovery also depends on the third party being legally liable, for example through negligence. Where a fire in one shop is caused by an electrical fault in the neighbouring shop, the insurer that pays the first shopkeeper can seek to recover from the neighbour if the neighbour is legally responsible for the fire.
In marine insurance the right is set out in statute: section 79 of the Marine Insurance Act, 1963 expressly provides for the insurer's right of subrogation.
Where it applies
Subrogation applies to contracts of indemnity: property, motor, marine, liability and reimbursement health insurance. It does not apply to life insurance or to benefit-type covers that pay a fixed sum, because those are not contracts of indemnity.
An insurer can also agree to give the right up. A waiver of subrogation is an endorsement under which the insurer agrees not to pursue recovery against named parties, such as related companies, tenants or contractors.
What the insured must do
Although the insurer's right arises on payment, the insured must protect it from the moment of loss. That means recording the details, such as the third party's particulars, the FIR, witnesses and photographs, and cooperating with the insurer's recovery effort.
It also means not settling with or releasing the third party privately. A settlement made without the insurer's knowledge can prejudice its subrogation rights, and the insurer may then reduce or deny the claim.
When insurers recover from responsible third parties, their net claims cost falls, which supports pricing in principle. The effect on any individual premium is not guaranteed.
Rules at a glance
A parked car and a careless driver
Illustration: Deepa's parked car in Kochi is hit by a delivery van whose driver was reversing carelessly. She notes the van's number, takes photographs, reports the matter and claims under her own motor policy, which pays for the repairs.
Having paid, her insurer can pursue the van's owner, if he is legally liable, for what it paid. Had Deepa accepted cash from the van's owner and signed a note releasing him before telling her insurer, she would have damaged that right, and her own claim could have been reduced or refused.
Sharing a recovery
- Assumptions, for arithmetic only: an insurer has paid its insured ₹6,00,000 for a loss caused by a third party.
- Case 1: the amount recovered from the third party is ₹4,50,000. This is less than ₹6,00,000, so the insurer keeps all of it. Insurer's net cost = ₹6,00,000 − ₹4,50,000 = ₹1,50,000. Nothing passes to the insured.
- Case 2: the amount recovered is ₹6,40,000. The insurer may keep only what it paid, ₹6,00,000. Surplus = ₹6,40,000 − ₹6,00,000 = ₹40,000, which belongs to the insured. Insurer's net cost = ₹6,00,000 − ₹6,00,000 = nil.
Result. The insurer never keeps more than the ₹6,00,000 it paid: it bears ₹1,50,000 in the first case, and in the second the ₹40,000 surplus goes to the insured.
Key points
- Subrogation lets the insurer, after paying, use the insured's rights against the responsible third party.
- It is a corollary of indemnity and stops the insured being paid twice for one loss.
- The right arises after the claim is paid and is limited to the amount paid; any surplus belongs to the insured.
- It does not apply to life insurance or fixed-benefit covers.
- The insured must preserve the insurer's rights from the moment of loss and must not settle privately.
Common misunderstandings
- Subrogation does not begin when the loss happens: the insurer's right to recover arises only after it has paid the claim.
- A private settlement with the third party is not harmless: it can prejudice the insurer's rights and put the claim at risk.
- The insurer is not entitled to everything recovered: it keeps only up to what it paid, and any surplus belongs to the insured.
Questions people ask
Does the insured have to wait for the recovery before being paid?
No. The insurer pays the claim under the policy first; its right to recover from the third party arises after that payment.
Can the insured recover from the third party as well as from the insurer?
Not so as to be paid twice. Any recovery from the third party goes to the insurer up to the amount it has paid; only a surplus beyond that belongs to the insured.
Do recoveries reduce premiums?
Recoveries lower insurers' net claims cost, which supports pricing in principle, but the effect on any individual premium is not guaranteed.
What this lesson relies on
- Marine Insurance Act, 1963 — section 79
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.