Subrogation is the legal right of an insurer to recover costs from the party responsible for causing a loss after they have paid your claim.
In simple terms, once your insurer compensates you, they can “step into your shoes” and pursue the person or business that caused the damage.
Subrogation helps:
- Ensure the at-fault party ultimately bears the cost.
- Keep premiums lower for everyone by reducing insurer losses.
- Protect your business from having to chase compensation yourself.
How Subrogation Works
| Step |
Action |
Practical Outcome for Insured |
| 1. The Claim |
The insurer pays your claim (minus your excess) so you can repair the damage immediately. |
You get your business running again quickly. |
| 2. Recovery Action |
The insurer takes legal action in your name against the at-fault party or their insurer. |
The process happens behind the scenes; you generally do not need to be involved unless information is requested. |
| 3. Excess Reimbursement |
If the insurer successfully recovers all costs, they will reimburse your excess. If the recovery is only partial, the excess may be partially or not reimbursed. |
The return of your excess is contingent on the insurer's successful recovery of the full loss amount. |
Examples of Subrogation
| Policy Type |
Scenario (The Loss) |
Insurer Action (Subrogation) |
Insured's Key Benefit |
| Commercial Property / Home & Contents |
Your business office is flooded because a neighbouring tenant failed to maintain their faulty plumbing. |
Your insurer pays for your office repairs and replacement of contents, then pursues the neighbouring tenant or their Public Liability insurer for the costs. |
You don't have to hire lawyers to sue your neighbour; your insurer handles the recovery process. |
| Motor Vehicle / Commercial Fleet |
One of your fleet vans is severely damaged in a collision where another driver is clearly at fault (e.g., they ran a red light). |
Your insurer pays for the van's repair or replacement, then pursues the at-fault driver's CTP and/or Motor Vehicle insurer. |
Your vehicle is repaired quickly under your policy, and your excess is usually reimbursed if the recovery is successful. |
| Public Liability (PL) |
A product your business sold (e.g., a batch of industrial cleaning fluid) was faulty and caused damage to a client's machinery. |
Your Public Liability insurer pays the client's claim for the damaged machinery, then pursues the original manufacturer or supplier of the faulty cleaning fluid. |
Your PL policy protects your business initially, and the manufacturer (who was ultimately at fault) bears the final financial burden. |
| Builder's Risks / Contract Works |
A fire starts on a construction site due to the negligence of a third-party electrical contractor who was not named as an insured party. |
The Contract Works insurer pays the builder (the insured) for the damage to the structure, then pursues the electrical contractor or their liability insurer for the costs. |
The construction project minimises delays, and the cost of the loss is recovered from the party who caused it. |
Key Points
- Waiver of Subrogation: Some commercial contracts (common in construction and leasing) require you to waive your insurer's subrogation rights. This reduces the insurer's recovery options, and agreeing to it must always be disclosed to your insurer and may require a special endorsement and premium adjustment.
- Insured's Duty: You must not do anything that prejudices (harms) the insurer's right of recovery, such as admitting liability or agreeing to a settlement with the at-fault party before speaking with your insurer.
