What is Subrogation?

In Canada, generally speaking, subrogation refers to the legal right of an insurance company that has indemnified its customer for loss or damage pursuant to an insurance policy to ‘step into the legal shoes’ of its customer and bring a lawsuit in the customer’s name against third parties that caused the loss or damage.  Subrogation serves a number of purposes including (1) preventing people from obtaining  “double recovery” under both an insurance policy and a legal action; (2) ensuring that wrongdoers are held accountable for loss or damage that they have caused to others, notwithstanding that the victim may have insurance.

Canadian common law provides that an insurer must bring its legal action in the name of its customer, rather than in the name of the insurance company. The reason for this is largely historical. Originally, an insured customer was required to take all steps within his or her power to reduce a loss for which they received insurance, including exercising legal remedies against third parties. Since those remedies were personal to the customer, however, they could only be exercised in the name of the customer as a matter of procedural law. The common law did not provide a method whereby a person could be compelled to commence an action against another; therefore insurers had to apply to a Court to compel their customer to allow his or her name to be used for legal proceedings against third persons in order to reduce the loss.

Today, the right of subrogation will automatically accrue to insurers who have fully indemnified their customers under an insurance policy.  However, the legal action still must be commenced in the customer’s name, rather than in the insurance company’s name.  For more information on this topic, including Canadian case references which articulate this principle, please check out “Canadian law still requires that subrogated actions be brought in the name of insured rather than insurer“, at Cozen O’Connor’s Subrogation and Recovery Law Blog.

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