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Difficulty: MediumBasic Principles of Insurance

A logistics company's delivery truck was damaged in a road accident caused entirely by a reckless third-party driver. The insurance company fully indemnified the logistics company for the repair costs of 1,200,0001,200,000 Naira and subsequently sued the reckless driver to recover the money paid. Which principle of insurance entitles the insurer to take legal action against the third party in place of the insured?

  1. SubrogationAnswer
  2. B
    Contribution
  3. C
    Utmost Good Faith
  4. D
    Insurable Interest

Answer

Subrogation
Subrogation is the principle of insurance that allows an insurer, after compensating the insured for a loss, to inherit all legal rights and remedies of the insured against a third party who caused the loss.

Step-by-Step Solution

1
Analyze the legal scenario between the insured, the insurer, and the third party.
The insurer indemnified the logistics company and then initiated legal action against the negligent third party responsible for the collision.
Identifying the specific legal right exercised after full claim settlement isolates the controlling insurance principle.
2
Evaluate the definition of subrogation in commercial insurance.
Subrogation transfers the legal rights of recovery from the insured party to the insurer once full compensation has been paid.
This prevents the insured from collecting double compensation (from both the insurer and the negligent driver) and ensures the liable party pays for the damage caused.

Key Concept

Subrogation in Insurance Contracts
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Topics

Basic Principles of Insurance

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