Recourse claim

What it means

Recourse is the right of a party that paid on someone else’s behalf to recover the sum from whoever caused the loss. Insurers use it against the policyholder, the Social Insurance Agency against the employer and health insurers against the party at fault.

It is not the same as policy exclusions. Under an exclusion the insurer pays nobody; under recourse it pays the insurance payout to the victim and only then pursues the person responsible.

A related but different idea is subrogation. When an insurer pays a company under property insurance for damage caused by a third party, the company’s claim against that party passes to the insurer. Under recourse the insurer turns on its own policyholder; under subrogation it pursues an outside wrongdoer, and the policyholder has to hand over the documents needed to do so.

How it works in practice

On motor third-party liability cover, recourse arises after driving under the influence, driving without a licence or leaving the scene of an accident. The victim is paid, but the bill reaches the policyholder.

The Social Insurance Agency claims recourse where benefits from employer accident insurance arose from a breach of health and safety rules. The invoice goes to the employer, not to the injured employee.

When a recourse claim arrives we book it as an expense and, where there are grounds to seek compensation from an employee, record a receivable against them. It can be deducted from pay only under an agreement with the employee or an enforceable decision, so before the first wage deductions we check that the agreement is signed and what amount it states.

What to watch out for

Companies forget that recourse arrives months after the crash and is aimed at them, not at the driver. Recovery from an employee who acted negligently is capped at four times their average monthly earnings, and the rest stays with the company.

A recourse demand should not be paid without checking it. The insurer has to prove both the grounds and the amount, and the claim is subject to limitation; a company that pays blind finds an overpayment hard to recover and often learns that part of the payout had nothing to do with the accident.