Subrogation occurs when an insurer pays a claim for its insured that was caused by?

Subrogation is a fundamental principle in insurance that allows an insurer to pursue a third party that caused a loss to the insured after the insurer has compensated the insured for that loss. In this scenario, the correct answer is when the insurer pays a claim for its insured that was caused by the negligence of another party.

When the insurer covers the costs associated with a claim resulting from another party's negligent actions, it enables them to seek recovery of those costs from the responsible party. For example, if a driver is involved in a car accident caused by another driver who was negligent, the insured can file a claim with their insurance company. The insurer will compensate the insured for the damages and then seek to recover that amount from the at-fault driver or their insurance company through the process of subrogation.

This mechanism serves a dual purpose: it ensures that the insured is made whole after a loss while also enabling the insurer to recover its costs, which helps keep insurance premiums lower overall. Understanding subrogation is crucial for insurance professionals, as it is a key element of the financial dynamics between insurers and insured parties when a loss occurs.