law recognizes the doctrine of subrogation in the context of insurance as permitting an insurer to recover amounts it has paid for loss by bringing an action against the tortfeasor(s) whose wrongful act caused the loss.[1] At its heart, subrogation is concerned with imposing the burden of a loss on the responsible party.
Efficiency and effectiveness are central to maximizing the value of a subrogation claim. This is accomplished in a variety of ways, and often involves resolving a myriad of issues unique to subrogation claims. Only some of the issues presented are within the control of the subrogated insurer. This blog post is the first in a series that will identify some common issues that arise in subrogation claims for property damage and provide some general guidelines for resolving those issues.
Subrogation Claims: Types of subrogation in South Carolina
South Carolina generally recognizes both contractual subrogation and equitable subrogation in the context of insurance.
[2] The doctrine of equitable subrogation (also referred to as “legal subrogation”) provides that an insurer’s right to bring a subrogation claim is not dependent on the insurance policy; instead, the right rests upon principles of equity. The creation of the right is automatic with payment of the loss for the benefit of the insured. Thus, an insurer may have a right to subrogation once it pays a loss even where the insurance policy is silent as to subrogation. The insured and tortfeasor cannot extinguish this right through settlement where the tortfeasor is aware of the insurer’s interest. However, a settlement made in good faith or a settlement before the loss is paid will bar the subrogation claim against the tortfeasor.
The recognition of equity as the fundamental basis for subrogation means the right can be forfeited and is subject to traditional equitable defenses, such as laches, waiver or estoppel. An insurer may forfeit its right to subrogation through inequitable conduct toward the insured.
Contractual subrogation arises under the terms of the policy. The rights and duties of the insurer as subrogee and insured as subrogor are defined by the policy. Those terms are generally subject to the traditional rules and principles of contract law.
While basic, the foregoing fundamental principles are important to keep in mind when understanding and attempting to forecast South Carolina decisions interpreting and applying subrogation law. Because the doctrine rests on principles of “fundamental fairness” and “natural justice,” South Carolina courts tend to focus on whether the principles they adopt will render the fairest possible result for the insured, insurer and tortfeasor.
To learn more about how Collins & Lacy handles subrogation claims, visit our subrogation webpage.
[1] E.g., Calvert Fire Ins. Co. v. James, 236 S.C. 431, 435, 114 S.E.2d 832, 835 (1960).
[2] In this is not true in the context of all first-party policies. For example, equitable subrogation is not recognized in the context of health insurance policies,
Shumpert v. Time Ins. Co., 329 S.C. 605, 496 S.E.2d 653 (Ct. App. 1998), but contractual subrogation can exist because it is statutorily authorized. S.C. Code Ann. §38-71-190 (1976 & Supp. 2012).
