Subrogation is the assumption by a third party (such as a second creditor or an insurance company) of another party's legal right to collect debts or damages. It is a legal doctrine whereby one person is entitled to enforce the subsisting or revived rights of another for one's own benefit. A right of subrogation typically arises by operation of law, but can also arise by statute or by agreement. Subrogation is an equitable remedy, having first developed in the English Court of Chancery. It is a familiar feature of common law systems. Analogous doctrines exist in civil law jurisdictions.
Subrogation is a relatively specialized field of law; entire legal textbooks are devoted to the subject.
Doctrine.
Countries which have inherited the common law system will typically have a doctrine of subrogation, but its doctrinal basis in a particular jurisdiction may vary from that in other jurisdictions, depending upon the extent to which equity remains a distinct body of law in that jurisdiction.
English courts have now accepted that the concept of unjust enrichment has a role to play in subrogation. In contrast, this approach has been stridently rejected by the High Court of Australia, where the doctrinal basis of subrogation is said to lie in the prevention of unconscionable results: for example, the discharge of a debtor or one party getting double recovery.
Types.
The situations in which subrogation will be available are not closed and vary from jurisdiction to jurisdiction. Subrogation typically arises in three-party situations. Some common examples of subrogation include:
Indemnity insurance. An indemnity insurer may be entitled to be subrogated to the rights of insured as against a third party who is responsible for the damage to the insured.
Law of guarantees. A surety may be entitled to be subrogated to the rights of the creditor as against the principal debtor.
Trust creditors. A creditor of a trustee may be entitled to be subrogated to the trustee's right of indemnity.
Subrogation to outgoing securities. A lender who advances funds for the purpose of discharging a security may be entitled to be subrogated to the third party's security as against the borrower.
Bills of exchange. The indorser of a bill of exchange may be entitled to be subrogated to the holder as against the acceptor (who is liable to indemnify the indorser).
Indemnity insurer's subrogation rights.
"Subrogation" has been used in this context to refer to two distinct situations.
First, after paying out under a policy of indemnity insurance, an insurer may be entitled to stand in the shoes of the insured and enforce the insured's rights against the third-party tortfeasor who is responsible for the loss. This is subrogation in its proper or core sense. Insurance subrogation, and, specifically, the types and amounts of payments that can be recovered, differs from jurisdiction to jurisdiction.
Secondly, after paying out under a policy of indemnity insurance, an insurer may be entitled to sue the insured where the insured has already had his loss made good by the third-party tortfeasor. That is, the insurer has a claim against the insured so as to ensure that the insured does not get double recovery. This situation might arise if, for example, an insured claimed in full under the policy, but then started proceedings against the third-party tortfeasor, and recovered substantial damages. Strictly speaking, this is not a case of subrogation; it is a case of recoupment.