South Dakota Crop Insurance Practice Exam

Which principle allows an insured person to recover from a third party after a loss?

1. Subrogation

2. Indemnification

3. Contribution

4. Mitigation

The correct answer is: Subrogation

Subrogation is a principle in insurance that enables an insured party to recover damages from a third party responsible for their loss. When an insured suffers a loss and their insurance company compensates them for that loss, the insurer may then take on the rights of the insured to pursue recovery from the responsible third party. This process allows the insurer to recoup their payout, effectively stepping into the shoes of the insured in seeking to recover damages. This principle is important in maintaining balance and fairness within the insurance system. It prevents the insured from receiving double compensation for the same loss — once from their policy and again from the responsible party. By allowing the insurer to reclaim costs from the at-fault party, subrogation also helps keep insurance premiums lower for everyone. While indemnification refers to compensating for losses, it does not involve recovery from a third party. Contribution relates to sharing losses among multiple insurance policies or insurers, and mitigation involves taking reasonable steps to reduce the extent of a loss, which is unrelated to recovery from a third party.