South Dakota Crop Insurance Practice Exam

What is subrogation in insurance terms?

1. The process of settling claims quickly

2. The right of the insured to sue the insurer

3. The transfer of collection rights to the insurer

4. The agreement on claim amounts

The correct answer is: The transfer of collection rights to the insurer

Subrogation in insurance terms refers to the process by which an insurer, after paying a claim to the insured, acquires the right to pursue recovery of the paid amount from third parties that may have caused the loss. This transfer of collection rights to the insurer allows them to seek reimbursement from those responsible for the loss or damage. When an insurer pays a claim, they effectively step into the shoes of the insured and can then pursue any legal avenues available against the at-fault party. This process ensures that the cost burden is placed back where it rightfully belongs, which helps maintain the overall sustainability of the insurance system by preventing losses from being solely borne by the insurer. In contrast, the other choices refer to different aspects of insurance processes: settling claims quickly focuses on efficiency in claims handling, the right to sue the insurer pertains to legal recourse available to policyholders if disputes arise, and agreement on claim amounts deals with the negotiation process between parties. None of these accurately captures the essence of subrogation, which is specifically about the transfer of rights for collection after a claim payout has occurred.