In a recent case out of the Seventh Court of Appeals of Texas, the court considered whether a waiver of subrogation provision waived an insurer’s claim for its insured’s uninsured losses or deductible. Am. Zurich Ins. Co. v. Barker Roofing, L.P., 387 S.W.3d 54, 66 (Tex. App.—Amarillo 2012, no pet.). In deciding this issue, the court focused on the specific language of the insurer’s policy and relied on basic principles of subrogation law. The court’s decision raises an important question as to whether an insurer has a right to include its insured’s deductible in a subrogation claim.
A few states have statutes or regulations that control the right of an insurer to seek recovery of automobile or property deductibles. In Texas, Section 542.204 of the Texas Insurance Code provides that, unless an automobile insurer notifies its insured that subrogation will not be pursued in accordance with the provisions of the statute, the insurer must either take action to recover its insured’s deductible against a responsible third party within one year after the insured’s claim is paid or pay its insured the amount of the deductible. There is no Texas statute or regulation that applies to the recovery of property deductibles.
Generally, Texas law provides that payment of a loss creates a subrogation right, and no formal assignment is necessary. Campbell v. Jefferson, 453 S.W.2d 336, 338-39 (Tex. Civ. App.—Tyler 1970, writ dism’d) (citingWichita City Lines, Inc. v. Puckett, 156 Tex. 456, 295 S.W.2d 894, 899 (1956); Magnolia Pipe Line Co. v. Security Union Ins. Co., supra; International Insurance Company v. Medical-Professional Building of Corpus Christi, 405 S.W.2d 867 (Tex. Civ. App., Corpus Christi, 1966, writ ref., n.r.e.)). However, as noted by the court in Am. Zurich Ins. Co. v. Barker Roofing, L.P., subrogation generally gives indemnity and no more, meaning an insurer is subrogated only to the extent of its payment and is limited to recovery of the amount paid.
The takeaway is that you should always review the specific language of the policy at issue to determine if the policy grants the insurer a right to recover its insured’s deductible. If the policy does not expressly give the insurer the right to recover its insured’s deductible, the best practice may be to include the insured’s deductible in a subrogation claim only at the request of the insured and with the insured as a party to any ensuing litigation or with an assignment from the insured. While this blog post discusses Texas law, it is imperative that you review the specific laws of your state with regard to the insured's deductible.