West Virginia Property and Casualty Licensing Practice Exam

After an insurance company pays a claim, what is the term for their right to seek reimbursement from the negligent party?

1. Liability

2. Subrogation

3. Indemnification

4. Restitution

The correct answer is: Subrogation

When an insurance company pays a claim on behalf of a policyholder, it often seeks to recover that amount from the party responsible for the loss. This process is known as subrogation. Subrogation allows the insurance company to step into the shoes of the insured to pursue a claim against the negligent party who caused the damage or loss. This principle is rooted in the concept that the insured should not benefit from a loss more than once; they receive compensation from their insurance for their loss while the insurer, through subrogation, attempts to recover the payout from the at-fault party or their insurer. In contrast, liability refers to the legal responsibility for causing damage or injury, while indemnification typically refers to compensating someone for harm or loss. Restitution involves restoring someone to their original position or compensating for loss suffered, often used in the context of criminal justice or disputes. Subrogation specifically addresses the insurer's right to recover funds after a claim payment, making it the correct term in this context.