PRINCIPLE OF SUBROGATION :

• As per this principle after the insured is compensated for the loss due to damage to property insured, then the right of ownership of such property passes to the insurer.

• This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity.

Subrogation means substituting one creditor for another. Principle of Subrogation is an extension and another corollary of the principle of indemnity. It also applies to all contracts of indemnity.

According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.

This principle is applicable only when the damaged property has any value after the event causing the damage. The insurer can benefit out of subrogation rights only to the extent of the amount he has paid to the insured as compensation.

For example: Mr. Arvind insures his house for ` 1 million. The house is totally destroyed by the negligence of his neighbour Mr. Mohan. The insurance company shall settle the claim of Mr. Arvind for ` 1 million. At the same time, it can file a law suit against Mr. Mohan for ` 1.2 million, the market value of the house. If insurance company wins the case and collects ` 1.2 million from Mr. Mohan, then the insurance company will retain ` 1 million (which it has already paid to Mr. Arvind) plus other expenses such as court fees. The balance amount, if any will be given to Mr. Arvind, the insured.