What Happens When Insurance Company Pays Claim?

Grand Prairie insurance lawyers need to be able to explain to clients what happens when an insurance company pays a claim. There may be several things that happen. One of those things is that the insurance carrier has a subrogation claim to all amounts paid by the insurance carrier. A 2009, San Antonio Court of Appeals opinion helps explain how this sometimes works. The style of the case is, Bay Rock Operating Company v. St. Paul Surplus Lines Insurance Company. Here is some relevant information from that case.
The facts in this case are that the insured hired Bay Rock to design and drill a well. The insured had blowout insurance through St. Paul. The policy had a subrogation provision in it entitling St. Paul to contractual subrogation to all claims if it paid anything under the policy. Bay Rock performed negligently, and there was a blow out. The insured filed a claim which St. Paul eventually paid. The St. Paul brought a subrogation claim against Bay Rock. At trial, the jury found Bay Rock 51% liable. Bay Rock then filed this appeal.
On appeal, Bay Rock argued that St. Paul did not prove that the amount paid under the policy was covered by the policy and, therefore, St. Paul did not prove its entitlement to subrogation. This Court of Appeals held that St. Paul was suing under contractual, not equitable, subrogation. The Policy states in relevant part, … upon reimbursement hereunder to the Insured of any loss … St. Paul is subrogated to all the Insured’s rights of recovery against any other person … who may be liable for such loss …. Therefore, under the plain terms of the contract, St. Paul’s right to subrogation arose upon payment of any loss. Once St. Paul paid the money to insured, it had a contractual right to step into the shoes of the insured and initiate the suit against Bay Rock as subrogee of the insured. Under the law of subrogation, based on its contractual subrogation right, St. Paul stepped into the shoes of its insured, and obtained their insureds’ right to sue Bay Rock for negligently causing the blowout, subject to any defenses Bay Rock could assert against the insured. Therefore, St. Paul was correct that, upon convincing the trial court that it had a contractual subrogation right as a matter of law, it only had to prove the elements of its negligence claim to the jury. Thus, the ruling in favor of St. Paul was upheld.
There will be situations where the insurance carrier decides they do not want to exercise their subrogation right. If this happens they will send a letter to their insured informing the insured that the subrogation right is not going to be pursued and giving the insured written permission to pursue the claim themselves.