Legal Definitions - legal subrogation

Legal subrogation is a legal term that refers to the substitution of one party for another whose debt the party pays. This entitles the paying party to rights, remedies, or securities that would otherwise belong to the debtor. For example, a surety who has paid a debt is entitled to any security for the debt held by the creditor and the benefit of any judgment the creditor has against the debtor, and may proceed against the debtor as the creditor would.

There are two types of subrogation: conventional subrogation and legal subrogation. Conventional subrogation arises by contract or by an express act of the parties. Legal subrogation arises by operation of law or by implication in equity to prevent fraud or injustice.

Legal subrogation usually arises when:

• The paying party has a liability, claim, or fiduciary relationship with the debtor
• The party pays to fulfill a legal duty or because of public policy
• The paying party is a secondary debtor
• The paying party is a surety
• The party pays to protect its own rights or property

For instance, if an insurance company pays for damages caused by a third party to their client, the insurance company is entitled to all the rights and remedies belonging to the insured against the third party with respect to any loss covered by the policy. This is an example of legal subrogation.