“Subrogation” as a Misapplied Term of Art

I’m in the process of revisiting the concept of “misapplied” terms of art, which I discuss in MSCD chapter 1. The idea is that it doesn’t make sense to use doctrinal terms of art in contracts if simpler terminology is available.

Today’s candidate for a misapplied term of art is the noun subrogation (and the verb subrogate). Here’s the Black’s Law Dictionary definition of subrogation:

subrogation (səb-rə-gay-shən) n. (15c) 1. The substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor. • For example, a surety who has paid a debt is, by subrogation, entitled to any security for the debt held by the creditor and the benefit of any judgment the creditor has against the debtor, and may proceed against the debtor as the creditor would. Subrogation most commonly arises in relation to insurance policies. 2. The equitable remedy by which such a substitution takes place. 3. The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.

Here’s an extract from EDGAR that uses the verb subrograte. I’ve marked the change I’d make:

Notwithstanding any payment made by the Capital Corporation hereunder or any set-off or application of funds of the Capital Corporation by the Administrative Agent or any Bank, the Capital Corporation shall not be entitled to be subrogated to [read will not acquire] any of the rights of the Administrative Agent or any Bank against JD Luxembourg or any guarantee or right of offset held by the Administrative Agent or any Bank for the payment of the Luxembourg Obligations, until all amounts owing to the Administrative Agent and the Banks by JD Luxembourg on account of the Luxembourg Obligations are paid in full in cash.

Here’s another extract. I deleted, as being redundant, the part referring to subrogation:

Until all of the Guaranteed Obligations have been paid or performed in full, the Performance Guarantor shall not exercise any right of subrogation to, and the Performance Guarantor waives, to the fullest extent permitted by law, any right to enforce, any remedy which the Trust now has or may hereafter have against the Servicer or the Seller in respect of the Guaranteed Obligations and the Performance Guarantor waives any benefit of, and any right to participate in, any security now or hereafter held by the Trust for the Guaranteed Obligations.

Here’s an extract from a lease that uses subrogation to convey its insurance-related meaning, followed by my version:

Original Version: All fire and extended coverage insurance policies carried by either Landlord or Tenant shall provide for a waiver of rights of subrogation against Landlord and Tenant on the part of the applicable insurance carrier.

My Version: In all fire and extended coverage insurance policies carried by either Landlord or Tenant, the insurer must waive any right to exercise rights and remedies of the insured against another with respect to any loss covered by the policy.

The bottom line: in contracts you can always use something simpler and clearer than subrogation and subrogate.

By the way, I’m wondering whether I can come up with a better word than “misapplied”.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.