Definition of subrogation – The occurrence of an accident while driving can cause harm to someone. In order to reduce the burden of losses in an unexpected accident, Matobers may register the vehicle with an insurance company. The insurance company will assist in mitigating losses by making repairs to the vehicle that was involved in an accident. Then, what if the accident that occurs is caused by a third party or other parties?
According to the Financial Services Authority (OJK) the principle of subrogation is the principle which states that the guarantor can get back compensation payments that have been given to creditors ( principle of subrogation ). The principle of subrogation as a principle that supports the principle of compensation or indemnity. The subrogation principle also looks at losses that occur before the insured gets compensation from unexpected events.
To find out more about the principle of subrogation, you can refer to this article, Matobers.
Definition of Subrogation Principle
The rules for subrogation are contained in Article 1400 of the Civil Code. The article contains that subrogation is a change of rights made by a third party to the creditor. The principle of subrogation is one of the six principles of insurance. In insurance there are two parties involved, namely the insurer/insurance company and the insured/customer.
This relationship is based on insurance principles. The principle of subrogation is the right of the insurer to sue third parties who cause the insured to suffer losses. After the insurer completes his obligations, the insurance company can sue the party that made the insured lose.
Usually, subrogation is applied to vehicle insurance that has been written in the policy/agreement. The insured party can get insurance claims in the form of health care and property or accidents.
For example, an insured car is damaged due to being hit by another party. After the insurance company has paid compensation for the damage, the insurer can sue the crashing party for causing the loss.
So the role of the principle of subrogation in this case is to limit the insured from getting compensation in excess of the losses he has suffered, usually this is often referred to as corollary on indemnity .
The role of the principle of subrogation is indeed quite important in cases of losses caused by accidents that cause losses, so as not to cause injustice to various parties in compensation.
Application of the Subrogation Principle
In several cases related to subrogation, usually the insurance company will immediately pay off claims from clients who experience losses. After that, the insurance company will ask for compensation from the other party that caused the loss.
As contained in Article 1365 Staatsblad Number 23 of 1847 concerning Burgelijk Weboek voor Indonesie (BW) or the Civil Code which stipulates that:
“Every act that violates the law, which causes harm to other people, obliges the person who because of his mistake to issue the loss, compensate for the loss”
Based on the above article, a third party has an obligation to compensate for losses that have been committed by them. This article is also a protection for insurance companies so that they do not have to pay what is delegated to them.
In an insurance policy, there are rights given to insurance companies that can demand payment for compensation that occurs to third parties. However, it should be noted that this applies if a third party is proven to be the cause of the loss.
So, the principle of subrogation can play an absolute role for insurance companies in recovering what is given to the insured due to a third party. In this case, the insured can still submit a claim for compensation to the insurance company for the amount of damage he has experienced.
The insurance company will pay the nominal compensation for the compensation that has been given by a third party to the insurance company for the negligence that has occurred.
However, the principle of subrogation is not used in every case of loss suffered by the insured due to a third party. Every insurance company has a consideration of cases that occur in using subrogation rights or not.
The Amount of Subrogation Rights
This subrogation principle functions to support that indemnity is not violated, so an insurer will not enjoy a recovery greater than the value of the loss that has been paid or settled by the insurer to the insured in connection with the loss.
For example, the insured has received compensation payments from the insurer of IDR 100,000,000 million, through the insurer managed to get recovery or compensation from a third party of IDR 120,000.00, then the subrogation right only justifies:
- Insurer to receive recovery of IDR 100,000,000.
- As for the remaining IDR 20,000,000, it becomes the right of the insured.
Subrogation Rights Arise
How do subrogation rights arise? There are 4 (four) circumstances or sources where an insurer obtains subrogation rights, namely:
1. TORT (Unlawful Act)
Tort is an act that violates compliance laws. If the principal insured suffers a loss/damage guaranteed in the policy and is caused by a third party’s error/negligence (in accordance with Articles 1365 & 1369 of the Civil Code), then the third party that caused the loss or damage must be responsible for all the loss or damage that occurs.
After the insurer pays compensation for the loss/damage suffered by the insured, the insurer obtains the right of subrogation from the insured to sue the third party which resulted in loss or damage to the insured’s interests.
For example: Mr. A’s insured vehicle was hit by Mr B’s vehicle. The damage to Mr A’s vehicle has been repaired by the insurance company, so the insurance company has the right of subrogation to sue Mr B who caused the loss.
2. Contract (Agreement or Contract)
The rights and responsibilities of each party entering into the contract or agreement are usually stated in the contract or agreement. So that if one party because of negligence to carry out the contract or agreement causes losses to the other party. Then he (the guilty party) is obliged to compensate for the loss.
If the insurer has paid compensation to the insured, then the insurer can ask for compensation or reimbursement to the guilty party. In relation to subrogation, there are 2 (two) important matters, namely:
- Someone who has a contractual right to get compensation regardless of mistakes. Example: an employee in his employment contract with company X stated that company X still pays salaries even though he is absent from work due to illness or an accident. If the employee also insures for coverage C under As. Personal accident/temporary disability, then the subrogation can be recovered from company X where he works.
- Customs that apply in trading there are provisions that the insurer must be responsible for damage or loss that occurs to the goods belonging to the insured handed over. For example: in a transportation, the carrier must be responsible for loss or damage as a result of mistakes or negligence committed by him or his employees. So if there is damage or loss due to the actions or negligence of the company, then the company must be responsible for the losses that occur.
3. LAW (law)
In England, if a riot occurs which results in loss or damage, the local government will be responsible, in this case the police.
If the insurer has paid compensation to the insured, then the insurer can ask for compensation or reimbursement from the police (subrogation rights). The insured’s right to sue is only given 7 (seven) days after the riot.
4. Subject Matter of Insurance (Principal Coverage)
In this case, there is a claim that is considered a total loss claim, the insured will receive full compensation:
If there is salvage (remaining goods), then the salvage will become the property of the insurer after the claim for the loss is settled or paid.
The salvage has economic value, if it is sold and is a claim recovery. This is one of the subrogation rights.
Loss of Subrogation Rights
The insurer cannot obtain the right of subrogation in the event that compensation is made/completed by the insurance company ex-gratia . Payment of claims in Ex-gratia is a compensation payment made by the insurance company to the insured, which is safe in fact the claim is not guaranteed under the conditions of the policy.
However, due to several commercial considerations, the insurer agrees to pay part or all of the loss. Payments like this are called “Exgratia Payments”.
Principle of Coverage of Subrogation Principle
There are 3 main points of coverage related to the principle of subrogation that Matobers needs to know, namely:
- If the insured suffers a total loss, then the insured will get full compensation.
- If an unexpected event results in salvage , it will be given to the insurer after paying a loss claim to the insured.
- If the remaining goods have a selling price or economic value, they can be sold by the insurer. This includes claim recovery which is included in one of the subrogation rights.
The principle of subrogation was created to protect insurance companies from unexpected events that occur to the insured. In addition, the role of subrogation is also very helpful for insurance companies so they don’t suffer losses. The third party is indeed guilty of this, and therefore must pay the loss to the insurance company so that it can make amends to the insured party.
The Principle of Subrogation in Accounts Receivable
The subrogation principle stated in Article 1400 of the Civil Code is the reimbursement of money addressed to a creditor. The goal is not to free the debtor from debt, but to take over the debtor’s debt.
For this matter, subrogation can be done if there is more than 1 creditor with the same 1 creditor. Then there is payment of money from the new creditor to the old creditor. The principle of subrogation allows third parties to replace the position of old creditors, new creditors to debtors.
Constraints from the Implementation of Subrogation
This subrogation makes the transfer of rights to collect receivables in the hands of new creditors. Thus, if the debtor cannot fulfill his debt obligations, the new creditor has the right to carry out collateral execution.
In addition, the implementation of subrogation is also constrained because the insured states that he does not understand the provisions of subrogation. The insured’s lack of understanding can be distinguished in 3 (three) ways, namely:
- The insured does not understand that for the unlawful acts of third parties, he will only be given compensation limited to the losses suffered. So it is not permissible to get compensation from both, namely the insurer and a third party. This provision regarding subrogation is often questioned by the insured because he feels entitled to receive compensation from both parties, from a third party for violating the law as well as from the insurer in return for the premium he has paid.
- The insured does not understand that even though he has received reimbursement from a third party, he should still convey changes in the condition of the insured object to the insurer. This is based on the provisions in article 18 of PSAKBI which states that the insurer has the right to inspect the insured vehicle at any time during the insurance period.
- The lack of understanding of the insured is reciprocally influenced by the presence or absence of clear information regarding the entire contents of the policy at the start of the agreement. The public side of the insured can actually be reduced if the insurer carefully explains the rights and obligations of the insured. If Article 251 of the Criminal Code regulates the obligation of notification by the insured, the same obligation should also be imposed on the insurer.
Insurance Company Responsibility for Subrogation Rights
Losses caused by other people are known as third parties. If there is a loss caused by the third party, the right of subrogation arises. The right of subrogation is one of the principles of insurance regulated in Article 284 of the Commercial Law which reads:
“If an insurer has paid full compensation to the insured, then the insurer will replace the position of the insured in all matters to sue third parties who have caused losses to the insured.”
In other words, if the insured suffers a loss due to a third party’s negligence or error, the insurer after providing compensation to the insured will replace the position of the insured in filing a claim against the third party. The insured has the right to get compensation for no more than the loss he has suffered, if after being reimbursed by the insurer there are other financial rights then it becomes the insurer’s right.
In this case, the insurer acts on behalf of the insured in withdrawing the subrogation. However, if the loss involves matters not stated in the insurance policy ( uninsured perils ), then the right of subrogation does not apply to those uninsured perils .
Subrogation rights only arise for fire insurance agreements, motor vehicles and others. This right does not apply to such life insurance agreements. The process that goes through to process claims for losses caused by third parties, the first is that the insurer asks for clarification from the insured, the two insured parties must make a statement that the insured really was hit by a third party, the three insured must include a statement from the police.
The right of subrogation can be given to insurance if the insurance has compensated for losses that have been suffered by the insured. Insurance has the right to demand reimbursement from third parties for the amount of money or costs incurred to compensate for the losses suffered by the insured by including a letter of subrogation.
Even though there is a law that regulates the right of subrogation, it turns out that the settlement process is not so easy for the insurer to apply this right, so the responsibility efforts as the insurance party will still cover or compensate for the losses experienced by the insured. This is related to one of the principles of insurance, namely the principle of utmost good faith in addition to the principle of subrogation.
So that’s about the understanding of the principle of subrogation , its application to its impacts, Matobers. If Matobers is still confused, and needs related references to the complete principle of subrogation, you can visit Sinaumedia’s book collection at sinaumedia.com. I hope this article inspires you!