Texas All Lines Adjuster Practice Test

What is the process of Subrogation in insurance?

1. The insurer's rights against the claimant

2. The transfer of rights from the insurer to the policyholder

3. The transfer of a claimant's rights to the insurer after indemnification

4. The claimant's right to sue the insurer directly

The correct answer is: The transfer of a claimant's rights to the insurer after indemnification

Subrogation is an essential concept in insurance that involves the transfer of rights after a loss has occurred. When an insurer indemnifies a policyholder for a loss, they may obtain the policyholder's rights to seek recovery from a third party who may be responsible for that loss. This process allows the insurer to pursue any legal claims against the responsible party and attempt to recover the amounts paid out for the claim. By enabling this transfer of rights, subrogation helps to ensure that the financial burden of the loss is ultimately placed on the party at fault rather than the insurance company or the policyholder. It promotes fairness within the insurance system and mitigates losses for insurers, which can help keep premiums lower for policyholders. In contrast, the other choices do not accurately describe subrogation. The insurer's rights against the claimant are part of separate legal concepts, and the transfer of rights from the insurer to the policyholder does not involve the type of recovery that subrogation entails. Similarly, the right for a claimant to sue the insurer directly relates to disputes over the policy or claims handling, not to the allocation or transfer of rights that characterizes subrogation.