If an insurer pays £1,000 for a total loss and recovers £750 from a third party, how much will the insurer and policyholder be entitled to?

In a situation where an insurer pays a claim for a total loss and subsequently recovers some of that amount from a third party, the principle at play is known as subrogation. This principle allows the insurer to stand in the shoes of the insured after paying a claim, enabling them to recover costs from third parties who may be responsible for the loss.

In this scenario, the insurer initially pays £1,000 for the total loss. When they recover £750 from a third party, the insurer retains the entire recovery amount because they have already fulfilled their financial responsibility to the policyholder by paying out the full £1,000. The policyholder does not receive any additional compensation from the recovery, as the amount recovered does not exceed what the insurer paid out.

Thus, following the subrogation principle, the insurer is entitled to keep the £750 recovered. Therefore, the insurer ends up with net payment of £750, while the policyholder does not receive any further compensation. This explains why the correct answer illustrates the financial arrangements post-recovery, distinguishing the roles and entitlements of the insurer and policyholder effectively.