In what circumstance can an insurer exercise the right to recovery under subrogation?

The correct choice highlights that subrogation occurs when a third party is responsible for a loss that an insurer has compensated the insured for. Subrogation allows insurers to pursue recovery from the responsible party in order to compensate themselves for the payout they made to the insured. This principle operates on the idea that a claimant should not profit from their loss and ensures that the party responsible for the damage ultimately bears the financial consequences.

For instance, if an insured individual suffers damage due to the negligence of another party, the insurer pays the claim to the insured. Subsequently, the insurer has the right to step into the shoes of the insured and seek reimbursement from the negligent party. This legal right is grounded in the idea of proportional responsibility and helps prevent unjust enrichment of the insured.

In contrast, the other situations mentioned do not trigger subrogation rights. A valid claim does not inherently involve third-party liability; a total loss can occur due to reasons that do not involve a third party; and being underinsured relates to the terms of coverage rather than the recovery mechanism against third-party liability. Thus, subrogation typically arises specifically when a third party is determined to have caused the loss.