Subrogation

What is subrogation?

Subrogation is the transfer to an insurer of the insured's legal rights against a third party, once the insurer has paid for the loss. If a transporter damages goods in transit, or a contractor's negligence causes a fire, the insurer pays its customer and then pursues the transporter or contractor to recover what it paid. The insured cannot collect from both the insurer and the wrongdoer for the same loss.

Subrogation follows directly from the principle of indemnity. Indemnity says the insured should not profit from a loss; subrogation makes sure that the party actually responsible for the loss still pays for it.

How subrogation works in India

• Statute. Section 79 of the Marine Insurance Act, 1963 sets out the right. On a total loss, the insurer may take over whatever remains of the subject matter and is subrogated to all the insured's rights and remedies from the time of the casualty. On a partial loss, it acquires no title to the property but is subrogated "in so far as the assured has been indemnified". Courts apply the same principle as an equitable rule across general insurance.
• Letter of subrogation. At claim settlement, insurers ask the insured to sign a letter of subrogation, often combined with a special power of attorney. This document records the transfer of recovery rights and lets the insurer sue in the insured's name.
• Consumer complaints. In Economic Transport Organization v. Charan Spinning Mills (2010), a Constitution Bench of the Supreme Court held that an insurer, as subrogee, can pursue a consumer complaint in the insured's name or jointly with the insured. It also held that a letter of subrogation-cum-assignment is not to be treated as a pure assignment.
• Product rules. The IRDAI (Insurance Products) Regulations, 2024 list salvage and subrogation among the basic principles insurers must respect when designing products.

Limits on subrogation

Example

A factory's machinery, insured for ₹1 crore, is damaged when a maintenance contractor's welding sets off a fire. The assessed loss is ₹30 lakh and the policy deductible is ₹1 lakh. The insurer pays ₹29 lakh and the factory signs a letter of subrogation. The insurer then claims ₹29 lakh from the contractor and its liability insurer. The factory's own uninsured ₹1 lakh can be recovered by the factory itself, or the insurer may pursue it on the factory's behalf if the parties agree.

What subrogation means for distribution

Subrogation rarely features in a sales conversation, yet it affects claims outcomes, customer cooperation and commercial contracts.

• Customers must not settle with the wrongdoer on their own. If a customer accepts a payment from, or signs a release in favour of, the party responsible without telling the insurer, they may damage the insurer's recovery rights and put their own claim at risk. Advisers should tell customers to inform the insurer before signing anything.
• Contract clauses matter in commercial sales. Leases, transport contracts and service agreements often contain waivers or limits of liability. Brokers and corporate agents should review these before placing cover, because a waiver of subrogation can change the insurer's pricing.
• Motor claims. In own damage claims caused by another vehicle, the insurer settles its customer and may then recover from the at-fault party or its insurer. The customer's cooperation with documents and police reports helps.
• Transit and logistics. Cargo claims rely on notices of loss served on carriers within contractual time limits. Missing those notices can defeat subrogation, so logistics customers need clear claim instructions at the time of sale.
• Recoveries improve loss ratios. For insurers, steady subrogation recoveries lower the net loss ratio, which supports pricing for the channel's customers at renewal.