In liability insurance, what is the purpose of a subrogation clause?

A subrogation clause is an essential component of liability insurance because it allows the insurer to take over the rights of the insured to pursue recovery for damages from a third party responsible for causing a loss. When a claim is made and paid out by the insurance company to the insured, the insurer has the right to seek reimbursement from the party that caused the loss. This process helps to avoid unjust enrichment where the insured could potentially collect compensation from both their insurer and the responsible party.

By enabling insurers to recoup losses, subrogation ultimately helps keep insurance premiums lower for policyholders. The other options do not accurately describe the subrogation clause. Policy limits are concerned with the maximum amount an insurer will pay for a claim, the scope of covered properties deals with what is insured under the policy, and premium calculations relate to how the cost of the policy is determined. None of these aspects pertain directly to the rights of the insured being transferred in order to recover losses, which is the primary function of the subrogation clause.