Q

Our insureds sustained a large fire loss to their restaurant approximately six years ago. The insurer paid close to $650,000 on the loss and then subrogated against a third party. That subrogation process has now ended and the insurer has recovered a minimal amount, about $30,000. Our insured had a $1,000 deductible on the property coverage, but the insurer has sent him only $70 as the repayment for the deductible.

The policy does not mention how the deductible recovery should be applied. It is our contention that the insured should receive the whole $1,000; the adjuster for the insurer insists that, due to the minimal recovery, only a pro rata recovery is due to the insured. What is your opinion on this matter?

Michigan Subscriber

A

Unless the policy describes how deductibles are to be handled, you are correct in your contention that the insured has to be made whole for his loss. The deductible is used as a way for the insured and the insurer to arrive at a proper premium for the exposure; but if a loss occurs, and the insurer recovers from a third party for payment of a loss, the insured is entitled to full recovery before the insurer receives its payment. Besides, if the insurer wanted to prorate the recovery, it should have said so in the policy; or it should have received enough to cover the deductible through its negotiations. Either way, the insured is entitled to full recovery of the deductible.