South Carolina Personal Lines Practice Exam

What does subrogation allow an insurance company to do?

1. Pursue any claim against the insured

2. Pursue third parties for funds given for a loss

3. Automatically pay all claims without investigation

4. Settle claims without the insured's consent

The correct answer is: Pursue third parties for funds given for a loss

Subrogation is a fundamental principle in insurance that allows an insurance company to pursue a third party who is responsible for a loss after it has compensated the insured for that loss. When an insurance company pays out a claim to its policyholder, it effectively steps into the insured's shoes and gains the right to seek reimbursement from the party at fault. This process helps insurance companies recover costs associated with claims that they have already paid. For example, if a driver is involved in an accident caused by another driver, the insurance would pay for the damages to the insured's vehicle. If that driver’s negligence is established, the insurer can then pursue recovery from the at-fault driver’s insurance company. This right to recourse not only helps insurance companies minimize losses but also helps keep overall insurance premiums lower for policyholders by allowing them to recoup expenses. The other options are never features of subrogation. For instance, the concept does not permit insurers to pursue claims against their insured or settle claims without the insured's consent, as those actions would violate the terms of the insurance agreement and the principle of indemnity.