INSURER’S RIGHT OF SUBROGATION
1. Basis
 Substitution of one person in place of another
with reference to a lawful claim or right, so that
he who is substituted succeeds to the rights of
the other in relation to a debt or claim,
including its remedies and securities.
 Basically a process of legal substitution. The
insurer, after paying the amount covered by the
policy, steps into the shoes of the insured,
availing of himself the latter’s rights that exist
against the wrongdoer at the time of the loss.
2. Purposes of subrogation condition in policy
 To make the person who caused the loss legally
responsible
 Prevent the insured from having double
recovery from the wrongdoer and the insurer
-The insurer has the right to recover
 Directly in a suit against the wrongdoer or
 As the real party in interest in a suit brought by
the insured
Case Doctrine:
Whenever the wrongdoer settles with the insured
without the consent of the insurer and with the
knowledge of the insurer’s payment and right of
subrogation, such right is not defeated by settlement.
3. Right of subrogation applicable only to property
insurance
 Value of human life is unlimited thus no
recovery from a third party can be deemed
adequate to compensate the insured’s
beneficiary. Life insurance contracts are not
ordinarily contracts of indemnity.
4. Privity of contract or assignment by insured of
claim not essential.
a. Payment by the insurer to the insured serves
as an equitable assignment to the former of
all the remedies which the latter may have
against the third party.
b. Right of subrogation does not come from
privity of contract but it accrues upon
payment of the claim by the insurer.
c. The subrogation receipt is sufficient to
establish not only the relationship of the
insurer and the insured, but also the amount
paid to settle the insurance.
5. Loss or injury for risk must be covered by the
policy otherwise there could be no subrogation.
6. Right of insured to recover from both insurer and
third party
– The right of subrogation given to the insurer
prevents the insured from obtaining more than the
amount of his loss (Remember that it is a contract
of indemnity hence the insured cannot profit).
 If the amount paid by the insurance company
does not fully cover the injury or loss, the
aggrieved party viz. the insured is entitled to
recover the deficiency NOT the insurer.
7. Right of insured to recover from insurer instead of
the third party
 The insurer cannot defeat the claim on the
ground that the insured has the right to be
indemnified by the third person who caused the
loss.
8. The right of the insurer against the third party who
caused the loss is limited to the amount
recoverable from the latter by the insured.
9. The exercise of the right of subrogation by the
insurer is purely discretionary.(left to individual
choice)
10. The right of subrogation has its limitations:
a) Both the insurer and the consignee are bound
by the contractual stipulations under the bill
of lading.
b) The insurer can be subrogated only to the
rights as the insured may have against the
wrongdoer
Note: If the insured, after receiving payment from the
insurer, by his own act, releases the wrongdoer from
liability then the insurer loses his rights to the
wrongdoer. Consequently, the insured will be bound to
return to the insurer, the amount it paid as indemnity.
Under Art. 2207, the insurer is the REAL PARTY IN
INTEREST as re: the portion of the indemnity paid.
Case: Where the insurer pays the insured the value of
the lost goods without notifying the carrier who has, in
good faith, settled the claim for loss of the insured, the
settlement is binding on both the insured and the
insurer, and the latter can’t bring an action against the
carrier on his right of subrogation.
11. Effect of assignment by insured of its rights against
third party to insurer
 Where the insured (shipper) has assigned its
rights against defendant (carrier of goods) for
damages caused to the cargo shipped, to the
insurer which paid the indemnity, the case isn’t
between the insured and insurer but one
between the shipper and the carrier because
the insurance company merely stepped into the
shoes of the shipper. And if the shipper has a
direct cause of action vs. the carrier on account
of the damage to cargo such action can be
asserted or availed of by the insurer as a
subrogee of the insured and the carrier cannot
set up as a defense any defect in the insurance
policy because it is not privy to it.
APPLICABILITY OF THE CIVIL CODE
Doctrines:
1. If the insurer’s company is vitiated by error then
such fact may be used to give rise to the nullity of
the contract
2. Contract for a life annuity was not perfected where
the acceptance of the home office of the insurer
never came to the knowledge of the applicant who
perished
3. An insurance contract is null and void where the
consideration is false or fraudulent
4. When an insurance contract is rescinded then the
obligation of mutual restitution under the Civil
Code shall apply
5. A common-law wife is disqualified from becoming
the beneficiary of the insured
6. The award of moral and exemplary damages in
case of unreasonable delay in the payment of
insurance claims shall be governed by the Civil
Code.