Los Angeles Claims Adjuster Property and Causality Practice Exam

Which statement accurately describes the subrogation clause in a CGL policy?

1. The insured must not file a claim

2. The insured must transfer rights of recovery to the insurer

3. The insurance company cannot recover any losses

4. The insured can impair recovery rights post-loss

The correct answer is: The insured must transfer rights of recovery to the insurer

The subrogation clause in a Commercial General Liability (CGL) policy allows the insurer to take on the rights of the insured to pursue recovery from a third party after they have paid a claim. This means that once the insurance company settles a claim on behalf of the insured, it can seek to recover those costs from the party responsible for the loss. By transferring the rights of recovery to the insurer, the subrogation clause prevents the insured from profiting from the insurance claim while also allowing the insurer to recover their losses. This mechanism ensures that the financial burden of the loss is ultimately borne by the liable party, rather than the insured or the insurer absorbing the loss without recourse. The other choices do not accurately reflect the function of the subrogation clause. For instance, the insured still has the ability to file claims, and the insurer indeed can recover losses as part of the recovery process after a claim has been settled. Additionally, the insured's actions should not impair the insurer's recovery rights; otherwise, it could lead to complications that affect claims handling and recovery efforts.