Subrogation – an insurer’s right to recover

There’s a term in landlord insurance policies that you might not be aware of – but should be. It’s “subrogation” and if your insurer utters those words, you need to know what it means and how it impacts you…

Sometimes, when a landlord submits an insurance claim, the damage or loss is the result of natural causes, like an extreme weather event. Other times, the damage or loss is the result of something that someone did. A tenant could damage a rental, either by accident or on purpose, for example. Or a tenant could fail to pay their rent. Or a vandal could break in and cause a mess.

When the damage or loss is the result of someone’s actions, this is where that word “subrogation” comes in. Subrogation is the insurer’s ‘right to recover’, allowing the insurer to pursue the person at fault to recover the money paid out for an insurance claim.

Let’s break it down…

You take out insurance to protect yourself against a range of insured events like property damage and loss of rent. If you suffer a loss, assuming there is cover for that loss and you have a valid claim, then your insurer pays out. With insurance, your insurer compensates you and then can seek compensation for the claim if there is a responsible party.

What if there is no one to blame?

Of course, if your loss is due to a weather event, the insurer isn’t going to request compensation from Mother Nature. But if there is someone who is legally responsible for that loss – for example a tenant, criminal, property manager or tradie – the insurer has the right to try to recover the money they paid out for the claim from that person.

Does this hold up a claim settlement?

In most cases, the policyholder’s insurance company pays their claim for losses directly, then seeks reimbursement from the other party after the fact. In such cases, the policyholder typically receives prompt payment. Then the insurance company may pursue a subrogation claim against the party at fault for the loss.

Why do insurers seek recovery?

Insurers need to have enough money to be able to pay out claims. This means they need to operate as sustainable businesses. Insurance companies would not be able to exist if they just paid out claims and let those responsible for causing the losses wipe their hands of it. By recovering losses, insurers can continue offering cover to those in need.

Do insurers always pursue recovery?

Although an insurer may have the right to pursue recovery in many loss situations, they may not choose to do so. When it comes to EBM RentCover, we typically only recover losses that are the fault of the tenant. For example, if a tenant does not make good on paying their rent, we are likely to try and recover this. However, if the damage or loss relates to an accident, or if there is little proof that the damage or loss was caused by the tenant, we will not pursue this recovery. In addition, EBM RentCover won’t recover if the tenant has been released from the property due to financial hardship or is impacted by family and domestic violence.

How does subrogation concern landlords?

Due to the subrogation clause in your landlord insurance policy, you should never “do a deal” with your tenant when it comes to a loss they caused. Let’s say your tenant damages your property. You say to your tenant, “don’t worry about fixing that, I’ll just take the cost out of your bond”, and tell yourself, “and claim it on my insurance as intentional tenant damage”. Your tenant says, “okay, I suppose it doesn’t make much difference if I pay for it straight out of my pocket or out of my bond”. You deduct the cost from the bond and submit an insurance claim. Your insurer pays you and seeks recovery from your tenant. You see, as far as your insurer is concerned, your tenant caused the damage, and they now have the right to recoup the funds they paid to you for your claim. The tenant isn’t likely to thank you if they are expected to pay for the damage twice – once through their bond and again if the insurer comes knocking. And your insurer isn’t going to be happy that you have ‘double dipped’ (this is basically insurance fraud).

We know this can be a complicated topic. However, the team at EBM RentCover can simplify it for you. If you have any questions about subrogation or other claims matters, please have a chat with a member of our Expert Care team – 1800 661 662. 

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions.