What happens if a loss is paid under a policy and subrogation is applied?

When a loss is paid under an insurance policy and subrogation is applied, the insurer has the right to pursue recovery of the costs it incurred in paying that claim. Subrogation allows the insurer to step into the shoes of the insured after the claim has been paid, enabling the insurer to seek reimbursement from the party responsible for the loss.

This process helps to keep insurance costs in check by allowing the insurer to recover some or all of the money it has paid out in claims, especially if it can identify a third party that is liable for the damages. Therefore, choosing the option that states the insurer may recover costs from liable parties accurately reflects the function of subrogation in the context of insurance claims.

The other choices do not accurately represent the purpose of subrogation. For instance, stating that the insurer loses money or cannot recover costs misrepresents the financial mechanics of subrogation, while implying that the insured must repay the insurer overlooks the nature of the agreement that the insured has with the insurer, which focuses more on compensating for losses rather than being indebted for payouts made in covered situations.