Question

In: Finance

As Steve was driving to work, his car was involved in an accident caused by a...

As Steve was driving to work, his car was involved in an accident caused by a speeding driver that ran a stop sign and crashed into her car. Steve has collision insurance on his car with a $500 deductible. The repair costs total $6500 for Steve's car.

1. If Steve files a claim with the insurer, can he also collect payments from the negligent driver's insurer? Explain your answer.

2. Explain the principles of subrogation and indemnity as they apply to Steve.

Solutions

Expert Solution

A1. As per the third party car insurance which is mandatory in most of the countries, Steve can collect payments from the negligent drivers insurer. This is usually capped to a certain amount and all the details of the payments would be available on the terms of the insurance.

A2. As per the principle of subrogation, Steve's insurance company can legally sue the insurance company of the negligent driver, thereby enabling them to pay a larger amount of money essentially decreasing the money they need to pay that is $500 under the collision insurance.

As per the principle of indemnity, Steve's insurance company has given Steve the guarantee of covering the collision and giving him $500.


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