A family-owned and operated brass foundry suffered from a fire. After their insurance company paid around $200,000 for the loss, the insurance company concluded that another party should be held responsible. They filed a subrogation against the foundry’s president.

A lawsuit followed. It was brought by the foundry executive, who argued that subrogation should be inapplicable. A lower court decided his argument had merit and ruled in his favor. With $200,000 as the financial stake, the foundry’s insurer decided to appeal.

Click below to read what considerations were made by the higher court regarding the executive’s status. What do you think? Will they find justification to subrogate the loss?

Serious losses often have a direct relationship with the perils that are associated with a given type of business. Manufacturers typically face more frequent and serious losses than many other businesses. It can be easy, even for insurers, to overlook differences.

Insurance producers are the ones who first put a set of eyes on a risk. It is quite important they are aware of exposures that apply to various types of businesses. Awareness, ideally, comes from experience in handling such businesses. Of course, it can be very helpful to look for resources that point out critical factors when experience is lacking.

Click here for a brief description of operations and coverage needs for a foundry that processes metals. It is from the Commercial Lines Survey found in Advantage Plus.

In the featured case, the insurance company proceeded based on their belief that the fire resulted from the foundry president’s actions. In its view, the critical issue was who should, ultimately, be held liable for the damage to the foundry.

When an insurance company pays for a loss, it assumes rights from its insured. One such right is called subrogation. It allows the insurer to pursue recovery from a party that actually caused a loss that is paid under an insurance policy.

However, subrogation rights have both practical and legal limitations. A practical factor is the financial wherewithal of the party identified as the subrogee. If that party lacks financial resources, then subrogation is useless. Another factor came into play with the damaged foundry. Was the potential subrogee legitimate?

Under a given policy, a party who is an eligible insured is not subject to subrogation unless there are extraordinary circumstances.

Click here for an article discussing subrogation, including examples of how it is applied. It is from Emarketing for Agents found in Advantage Plus.

Insurance works best when it operates as it is designed, protecting insureds. Protection occurs when a policy responds to eligible losses experienced by insureds. However, it is inefficient when an insurer pays for losses that are caused by parties that are not insureds.

The legitimate pursuit of subrogation assists with the proper use of insurance. As is the case with any part of a policy, subrogation must be properly interpreted in order to be applied correctly. When that occurs, the provision plays a critical role. It helps to maintain a healthy, efficient insurance market.

Subrogation is important for another reason. After premium income and investments, subrogation is an insurer’s third most important source of revenue!

Click here for an excerpt from an article that further points out the subrogation opportunities to enhance the bottom line. It is from the August 2007 issue of Rough Notes Magazine, found in Advantage Plus.