Two business partners at Happy Accounting Limited suffered a loss. It was revealed that the loss was caused by one of the partners Mr.Hap. What…

The principle of subrogation allows an insurer to recover from a negligent third party. However, a fundamental rule is that an insurer cannot subrogate against its own insured. In this scenario, Happy Accounting Limited is the named insured, and as a partner, Mr. Hap is also considered an insured under the policy. Since the loss was caused by an insured, the insurer is barred from pursuing recovery against him. The insurer must pay the claim to the business entity but has no legal avenue to recover the funds from the partner who caused the loss.

A. Subrogation: This is incorrect because an insurer is legally prevented from subrogating against its own insured, which includes partners of a named insured firm.

C. Waiver of subrogation: This is an agreement made before a loss, typically between the insured and a third party, not an option for the insurer after a loss.

D. Negligence: Negligence is the legal cause of action (the "why"), but subrogation is the mechanism for recovery (the "how"), which is not available to the insurer here.

1. Insurance Institute of Canada. (2017). C11: Principles and Practice of Insurance. Chapter 5: The Insurance Contract, Subrogation.

2. Insurance Institute of Canada. (2019). C130: Essential Skills for the Insurance Broker and Agent. Chapter 3: Legal and Ethical Responsibilities, Common Law.