Salvage and Subrogation Clause (Reinsurance)
The salvage and subrogation clause governs how salvage proceeds and recovery rights arising from a loss are shared between cedent and reinsurer.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Insurer
- Negotiability
- Market standard
Purpose
Following a loss, the cedent may recover value through salvage or pursue recovery from a third party through subrogation, reducing the net loss originally settled. The clause ensures that such proceeds are shared between cedent and reinsurer in the same proportion in which they originally participated in the loss.
Effect and limits
The reinsurer is entitled to its share of any recovery but must also bear its proportionate share of the reasonable costs of pursuing that recovery. The clause presumes the cedent actively pursues available recovery options; a waiver of subrogation against a third party can correspondingly reduce the reinsurer’s rights.
Negotiation and practice
Practically relevant issues include the order of distribution in multi-layer reinsurance programmes and the treatment of recovery costs, which are sometimes deducted from the recovery before sharing. A clear clause avoids disputes over allocating multi-year recovery processes to individual treaty years.