Canadian Accredited Insurance Broker (CAIB) One Practice Exam

When can an insurer NOT subrogate against an insured?

1. When there’s shared liability

2. When the insurer is at fault

3. When the insured has no insurable interest

4. When the insured has insurable interest in the property

The correct answer is: When the insured has insurable interest in the property

Subrogation is a legal concept that allows an insurer to pursue a third party that caused an insurance loss to the insured. It is intended to prevent the insured from receiving a double recovery for their loss by enabling the insurer to recover the amount it paid out in claims. In the context of the question, when an insured has an insurable interest in the property, subrogation is generally not a concern because the insured is the one who suffers the loss and holds the right to claim compensation. Since the insured has a vested interest in the outcome, the insurer cannot subrogate against them in such a scenario. This is particularly relevant when considering the nature of insurance contracts, where the relationship between the insurer and the insured is founded on the premise that the insured is entitled to receive protection and compensation for losses endured due to accidents, damages, or other covered incidents. As a result, the notion of subrogation does not apply if the insured has a legitimate claim based on their insurable interest, reinforcing the principle that they are entitled to their compensation without the insurer trying to recover funds from them.