CAIA Subrogation and Salvage 2 — Questions and Answers
Question 1: An insured's vehicle is totaled after being struck by an uninsured driver. The insurer pays the claim. Which subrogation option is available?
- Insurer cannot subrogate against an uninsured motorist
- Insurer can pursue a civil judgment against the at-fault uninsured driver (Correct answer)
- Insurer must waive the claim due to the driver's uninsured status
- Insurer must split recovery costs with the insured
Correct answer: Insurer can pursue a civil judgment against the at-fault uninsured driver
Even when the at-fault party is uninsured, the insurer retains the right to pursue a civil judgment to recover paid losses.
Question 2: When a salvage vehicle is sold at auction, how are the proceeds typically applied?
- Returned entirely to the insured as a bonus
- Applied to reduce the insurer's net loss on the claim (Correct answer)
- Divided equally between insured and insurer
- Deposited into a state salvage fund
Correct answer: Applied to reduce the insurer's net loss on the claim
Salvage proceeds reduce the insurer's net loss, effectively lowering the overall cost of the claim.
Question 3: What is 'waiver of subrogation' in the context of an auto insurance policy?
- The insured's agreement to pursue the at-fault party independently
- A policy provision where the insurer gives up its right to recover from a specified third party (Correct answer)
- A clause that eliminates collision coverage
- A requirement that the insured return any settlement received
Correct answer: A policy provision where the insurer gives up its right to recover from a specified third party
A waiver of subrogation is a policy endorsement where the insurer agrees not to seek recovery from a named third party after paying a claim.
Question 4: A salvage title is typically issued when a vehicle's repair cost exceeds what threshold compared to its ACV?
- 25%
- 50%
- 75% or more (Correct answer)
- 100%
Correct answer: 75% or more
Most states issue a salvage title when repair costs reach 75% or more of the vehicle's actual cash value, though thresholds vary by state.
Question 5: Which principle prevents the insured from collecting more than their actual loss through both insurance payment and third-party recovery combined?
- Contribution
- Indemnity
- Subrogation (Correct answer)
- Pro rata liability
Correct answer: Subrogation
Subrogation prevents unjust enrichment by transferring the insured's recovery rights to the insurer after the insurer pays the loss.
Question 6: If an insured settles directly with the at-fault party without the insurer's consent after the insurer has already paid the claim, what consequence may follow?
- The insurer must honor the settlement and release its subrogation rights
- The insured may be required to reimburse the insurer for the amount recovered (Correct answer)
- The at-fault party is released from all further liability
- The insurer can only recover from the state insurance guaranty fund
Correct answer: The insured may be required to reimburse the insurer for the amount recovered
If the insured prejudices the insurer's subrogation rights by settling without consent, the insured may be liable to reimburse the insurer.
Question 7: A vehicle deemed a total loss is sold to a salvage yard for $2,500. The insurer paid the insured $18,000 ACV. What is the insurer's net loss?
- $18,000
- $20,500
- $15,500 (Correct answer)
- $2,500
Correct answer: $15,500
The insurer's net loss is the claim paid minus salvage proceeds: $18,000 − $2,500 = $15,500.
CAIA Subrogation and Salvage 2
An insured's vehicle is totaled after being struck by an uninsured driver.
The insurer pays the claim.
Which subrogation option is available?