Legal Question in Insurance Law in California

Below is the verbiage of a settlement letter I received. The wording is confusing and the second paragraph makes me think that I am releasing my rights to someone else to receive payment instead of me. Can someone explain what it means please? Thank you so much!!!

In consideration of paying to us the sum of USD XXX.XX [XX Dollars and XX Cents] in irrevocable full and final settlement of any claim and all claims by us of whatsoever nature arising in respect of the cargo laden on board the above vessel and any obligations to us of whatsoever nature arising in respect of that cargo, and in mutually agreed complete fulfilment of all the immediate and consequential obligations of the insurers in respect of the cargo under the terms of POLICY NUMBER:


in respect of this matter in accordance with the laws governing the contract of

insurance we irrevocably confirm that the underwriters become subrogated to and

hereby assign for the benefit of underwriters all our rights and remedies in respect of this matter.

We further irrevocably confirm that you have the authority to use our name to the

extent necessary effectively to exercise all or any such rights and remedies; that we will furnish you with any assistance you may reasonably require of us when

exercising such rights and remedies, and we will indemnify you in respect of any

failure to do so, whilst on your part you will indemnify us in respect of any liability for costs, charges and expenses arising in connection with any proceedings which you may take in our name in the exercise of such rights and remedies.

Asked on 8/04/12, 5:41 pm

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2 Answers from Attorneys

Timothy McCormick Libris Solutions - Dispute Resolution Services

It is never possible to interpret an excerpt of a legal document with any certainty of accuracy. This is especially with absolutely no context as to who "us," "underwriters" or "insurers" or what claim and cargo we are talking about. It appears, however, to be a fairly standard subrogation agreement. Subrogation is actually automatic under the law, but rather than leave it an open issue, insurers generally require a subrogation agreement when settling claims. Here's what subrogation is: When a person or company is obligated to pay one party for something done wrong by another party (the most common situation being where an insurance company is obligated to pay the insured for a covered loss), the paying person or company becomes "subrogated" to the rights of the party receiving the payment to sue the party causing the loss. Example: I am sitting at a red light, and someone sending a text message barrels into the back of my car. My insurance company pays to repair my car. They then have subrogation rights against the driver who hit me. So this letter seems to say that "Us" is the injured party who will receive payment from the "insurer" and/or the "underwriters" and in exchange "Us" agrees that "underwriters" will be subrogated to "Us's" claim against whomever caused some loss of cargo. Seriously, though, do NOT rely on that. As I said at the beginning, there is no way to really know what the language means with no context and without the full document.

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Answered on 8/05/12, 12:58 am

Timothy McCormick Libris Solutions - Dispute Resolution Services

P.S. Subrogation applies regardless of whose insurance it is, but if it is not the claimant's insurer, then a subrogation agreement is more important to the insurance company. Insurance policies generally include a subrogation agreement in the contract of insurance. When party A is entitled to payment from party B, but party C is really the one at fault, or is primarily at fault and party B only tangentially at fault, party B's insurance company may settle with party A, and then become subrogated to A's claims against C and seek reimbursement from C under the subrogation rights. It is cleaner for B's insurance to make that claim against C if it has an express subrogation agreement from A, because it avoids having to plead and prove all the elements of common law subrogation when going after C in court.

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Answered on 8/05/12, 1:12 am

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