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Can an Insurer Sue a Boat-Borrowing Friend After a Grounding?

I had a humbling experience last year when a friend graciously allowed me to use his boat and I managed to run it aground. I will spare you the details of the incident, but we were all relieved when his insurance company paid him for the full amount of the loss. Unfortunately, the insurance company now wants me to reimburse them for their payment, and they have threatened to sue me. They apparently made this decision without consulting my friend, the boat owner. Can they do this?
We can provide a general overview to the issues raised in the question, but if an insurance company is threatening to file a lawsuit, you really do need to contact your own attorney right away.

When an insurance company pays a property damage claim, they are generally allowed to step into the shoes of their customer under a concept known as “subrogation.” If the loss that was suffered by their customer was caused by the negligence of another party, the insurance company may pursue a subrogation claim by filing a lawsuit against the negligent party.

Subrogation rights may arise under a wide range of circumstances, but most insurance policies expressly grant this right to the insurance company when it pays a claim. The insurance company may therefore pursue the claim without involving their insured customer, but the language of most policies will nonetheless require the customer to cooperate with the investigation and with the insurer’s pursuit of the recovery. The customer may also join with the insurance company in the lawsuit against the negligent party if the insurance did not pay for the entire amount of the loss.

Subrogation rights are subject to certain restrictions. The insurance company’s rights against a negligent third party cannot exceed the rights that the insured customer would have had, and the insurance company cannot recover more than the amount that it paid to their customer.

Further, subrogation rights exist only with respect to the rights of the insurer against third persons to whom the insurer owes no duty. This means that no right of subrogation can arise in favor of an insurer, against someone who is defined as an insured party under the policy.

Most marine insurance policies extend benefits beyond the named insured, to include anyone who uses the boat with the permission of the insured boat owner. In the question presented above by the reader, he was using his friend’s boat with the express permission of his friend, and as such he may fall within the definition of an “insured party.” If that is the case, the insurance company will have no subrogation action and they will need to drop their claim for reimbursement.

Ultimately, the language of the insurance policy will determine whether, and to what extent, the insurance company can pursue a subrogation action against a negligent party. Contact an attorney who is experienced in marine insurance coverage issues for more information.

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