The possibility of life insurance subrogation actions arising in Virginia are, admittedly, remote. However, after reading George Swan’s article entitled “Subrogation in Life Insurance: Now Is The Time”, with the right facts and an appropriately written term life insurance policy, there just might be chance to cultivate this new vine from the long established subrogation soil. Swan published this article in the Insurance Counsel Journal almost 31 years ago, so the clarion call of the author carries with it an unintended irony. Nevertheless, his cogent examination and discussion of the pitfalls, whether real or perceived, governing life insurance subrogation should not be discounted. Before jumping into the four core problems facing a litigator attempting a life insurance subrogation action, the difference between contractual, or conventional subrogation, and equitable subrogation should be discussed.
What is the difference between conventional (contractual) subrogation and equitable subrogation?
Swan does a good job delineating the differences, in both mechanics and the treatment received under the law, between conventional and equitable subrogation actions. Conventional subrogation, the type my firm regularly litigates in Virginia General District Court and Circuit Courts across the state, is “premised upon an express agreement between the parties and is governed by contract law principles.” In such circumstances, the insurer can be subrogated to the rights of its insured to seek compensation from the third-party tortfeasor. This is the most common type of insurance subrogation.
Subrogation by operation of law is founded upon equitable principles. The insurer obligates himself to pay a debt for which another party is liable. Since subrogation rights are always expounded in the insurance contracts governing coverage, in Virginia subrogation cases are almost always of the “conventional” type. Despite the different “theories” of subrogation, both are founded on the principle that the insurer suffers a fixed financial loss and the insurer seeks to collect from both the tortfeasor and the insurance company would allow him a “windfall.”