8. Explain the Concepts “Subrogation” and “Average” | Eastern Kentucky University - Edubirdie

University:
Eastern Kentucky University
Course:
LGS 300 | Introduction to Legal Studies
Academic year:

2022
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159

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1
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Nesbyenvkk

8. Explain the concepts “subrogation” and “average.” Subrogation Definition: Subrogation is the legal right of the insurer, after compensating the insured for a loss, to step into the shoes of the insured and exercise their rights against third parties responsible for the loss. Subrogation is based on the principle of indemnity — the insured must not profit from the insurance. Key Features:    Arises automatically after the insurer pays the claim. Allows the insurer to: - Recover the amount paid from a third party (e.g., a negligent driver), - Take over the insured’s legal rights to claim from that third party. Only applies in indemnity insurance (not life insurance). Example: If your car is damaged in an accident caused by another driver, and your insurer pays for the repairs, the insurer can sue the negligent driver in your name to recover the costs. Average Definition: Average is a principle that applies when the insured property is underinsured — that is, insured for less than its actual value. In such cases, the insured will only receive a proportion of the loss based on the amount of underinsurance. This prevents the insured from paying low premiums on undervalued property while still expecting full compensation. Formula: Claim Payable= ∑ insured actual value × Loss Example:    Value of property = R1,000,000 Sum insured = R700,000 Loss = R300,000 Claim Payable= 700 × 300=R 210,000 1,000,000 The insurer pays R210,000, and the insured bears the R90,000 shortfall. Where It Applies:   In property insurance, especially fire or household insurance. Only when there is an average clause in the policy

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