What term describes the transfer of the insured's right to seek damages from a liable third party to the insurance company?

The term that describes the transfer of the insured's right to seek damages from a liable third party to the insurance company is subrogation. This process occurs after the insurance company pays for a loss incurred by the insured. When the insurer settles a claim and pays the insured, it gains the right to pursue recovery of that amount from the responsible party. This mechanism allows insurance companies to mitigate their losses by obtaining compensation from the third party at fault, ultimately reducing the overall cost of claims.

Subrogation is a fundamental concept in insurance that ensures that the burden of loss does not fall solely on the insurer, allowing them to recover damages when appropriate. This process is essential for maintaining fair and equitable systems in insurance, as it prevents insured individuals from receiving double recoveries for the same loss and ensures that negligent parties are held accountable for their actions.