Law for Commerce

Question One

Explain what is meant by the right of subrogation. How may subrogation affect not only the insured but also the person who has caused the injury or damage? Indicate other means by which the insurance company may keep damages as low as possible.

Subrogation is the right of an insurance corporation to go after whoever caused the injury or loss, after it has paid out a claim to the insured. The insured must prove that the negligence was caused by a third party, allowing them to receive compensation. The third party will then be held accountable to the insurance corporation. In order for the insurance corporation to keep the damages as low as possible they have the choice to rebuild, repair or replace what is damaged. They also have the right of salvage. If the goods that were stolen were then recovered, the insurance corporation has the right to sell the goods to cover the loss suffered by repayment to the insurer. If goods were lost the insurer usually only has to pay only the depreciated value of the goods, not the replacement costs. When damages or loss occurs the insurer needs to disclose this situation right away so that the insurance corporation can take steps to minimize the damage, especially if it is a criminal matter and then the insurer needs to inform the police. The insurer is not permitted to profit form his willful misconduct. If the insurer causes the damage or loss the insurance corporation will not pay for the loss or damage, even if the insurer is named the beneficiary.

Question Two

What is bonding? Distinguish between bonding and insurance coverage.

Bonding is a form of protection a business person can obtain to protect themselves against losses brought on by their employees or the people they deal with. This protection allows the employer to pay a fee to be able to recover losses against employees for wrongful or even willful conduct that harm the business person. Bonding has two forms; fidelity bond and surety bond. Under fidelity bond if the employee steals from the employer the bonding corporation can turn to the employee and collect from that party. . Surety bonding is designed to provide assurance that a party to a contract will perform its side of the contract with a specified level of quality and by a certain time. If the party fails to complete the contract the bonding company will be required to pay compensation in order to complete the contract. The bonding corporation can turn to the employees or contractor for compensation of the wrongful loss or damages. The main difference from bonding and normal insurance arrangements is that insurance coverage is not generally available for wrongful acts committed by the insured or employees of the insured. Insurance is set to assist the insured against uncertain future events that may occur