You lodge a claim with your Insurer, you receive your payment, that is the end of it right? Sometimes yes. However occasionally, that is just the beginning. That is because your policy of insurance most likely gives your Insurer a right of Subrogation.
So, what exactly is Subrogation and what does it mean for you?
A right of subrogation allows an Insurer to effectively step into your shoes. In the case of a claim an Insurer has paid out on, it allows the Insurer to seek recovery of its loss in your name. This can include the filing of court proceedings in your name.
Having proceedings issued in your name can have impacts on you, including reputational impacts and credit impacts. Further, even though such an action will be run by the Insurer, the obligations imposed by the court and court rules apply directly to you. This will include obligations in relation to disclosure of documents. You or your Employees may also be required to give evidence if the matter proceeds to a trial.
These obligations cannot be ignored.
Firstly, as they are obligations owed to the court or pursuant to court rules, failure to comply with them can lead to yourself being in contempt of court. Secondly, your policy of insurance likely has a ‘reasonable assistance’ clause, contractually obliging you to provide such reasonable assistance as is needed by your Insurer in pursuing the recovery.
Failure to provide the reasonable assistance may lead to the cover being withdrawn, which may require you to repay any amount paid under the policy (with interest).
If your Insurer is pursing recovery pursuant to its rights of Subrogation it is best practice to be actively involved in that process. By being actively involved you can ensure, as much as possible, that you are complying with all requirements of the court and court rules, and best manage any reputational issues that arise out of the litigation.
Should the proceedings cause any issues in respect of credit, in most cases the Insurer will be happy to provide a letter explaining that the action is being pursued as a subrogated right, which should assist with any such issues.
Speak to your Broker or Legal Advisor if you are unsure as to what rights and obligations you do or do not have in relation to subrogated action taken by your Insurer.