Sarah has a house valued at $200,000 and insured for $180,000. It is totally destroyed by fire, due to the negligence of Courtney. Sarah recovers $180,000 from her insurer, which then subrogates against Courtney. Suppose the courts decide that Courtney must pay $100,000 in damages, because that's all the money she has. How much of this $100,000 can the insurer keep, assuming that the policy has no special provision regarding the distribution of subrogation amounts?

Question

Quizplus · Accepted Answer

The insurer can keep $80,000 because it has already compensated Sarah $180,000, which is $20,000 less than the house's value. Sarah can recover the remaining $20,000 from the subrogation amount.

Sarah Has a House Valued at $200,000 and Insured for $180,000