Third-party liability insurance plays a critical role in protecting individuals and businesses from having to pay out of pocket when they’re legally responsible for causing harm or damage to others. In the event of an accident, the third party’s insurer is expected to cover the costs. But in many cases, the injured party’s insurer may initially step in to settle the claim promptly, especially when delays would impact the policyholder’s well-being.

After settling a claim, insurers often seek to recover the amount paid by pursuing the party at fault or their insurer. In Australia, this process—known as subrogation—is recognised under the Insurance Contracts Act 1984 (Cth), with Section 67 confirming an insurer’s right to recover costs and Section 64 ensuring that such actions don’t unfairly harm the insured’s interests. This form of insurance debt recovery sounds simple in theory, but recovering the money owed is becoming more difficult in practice.

Challenges in Recovering Subrogation Claims

Insurers today are facing more roadblocks when trying to recover money from third parties. Various factors make up the reason why the process is getting slower and harder, and just legal advice can only do so much.

• Increase in Insolvencies Among Responsible Parties

Even a well-prepared subrogation case can lead to nothing if the responsible party is unable to pay. The Reserve Bank of Australia (RBA) has reported a 36.2% increase in business insolvencies, particularly among small to medium-sized enterprises. When a third party becomes insolvent (entering administration, receivership, or bankruptcy), liability insurers face significant hurdles in recovering funds. 

Insolvency laws under the Corporations Act 2001 (Cth) and the Bankruptcy Act 1966 (Cth) impose moratoriums that temporarily halt creditor actions during these proceedings. Creditors, including insurers, generally must obtain court approval to pursue recovery during these periods, and their liability claims are subject to priority rules that often favour secured creditors and cover administrators’ fees before other debts are addressed.

• Strict Legal Requirements on Indemnity Payments

The ability to pursue subrogation now depends heavily on how payments are structured. Following the 2022 High Court decision in AAI Limited trading as Vero Insurance v Technology Swiss Pty Ltd, insurers only gain subrogation rights if the payment was made strictly as indemnity. 

This makes it essential for insurers to carefully structure and document settlements. When the insurer claimed a right to recover, the courts now require detailed clarity about which parts of the payout correspond to indemnified losses. This added layer of legal complexity has made recovery action more challenging to manage and easier to dispute.

• Complexity of Multi-Party and Layered Insurance Claims

Many commercial claims today involve multiple insurers across several layers—primary, excess, umbrella, or even reinsurance coverage. Each layer has its own coverage terms, limits, and triggers, making it far more difficult to determine who holds the right to recover. 

The 2009 case Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd & Ors is a clear example; where overlapping policy structures and indemnity obligations created delays and legal confusion. These layered insurance arrangements often lead to disagreements over coverage and contribution, stalling subrogation recovery altogether.

• Delays and Timing Issues in Subrogation Opportunities

Timing plays a crucial role in subrogation, often serving as a determining factor in the success or failure of recovery efforts. Identifying liability early and acting promptly can determine the difference between a successful recovery and a closed door. In reality, internal backlogs, slow communication between departments, and a lack of clear referral processes often mean that recovery opportunities are identified too late.

• Contractual and Regulatory Constraints

Subrogation rights are also constrained by both policy terms and legislation. Some insurance policies restrict recovery against co-insured parties or affiliates, and commercial contracts signed by the insured may waive recovery rights altogether. 

Legislation such as the Insurance Contracts Act 1984 (Cth) imposes additional conditions on how subrogation can be pursued. They often require consent from the insured or compliance with statutory protections that benefit third parties. These legal and contractual hurdles frequently delay or block recovery, adding further strain to an already stretched insurance team.

Improve Subrogation Recovery Rates by Outsourcing 

Given the legal, administrative, and logistical barriers, it is no surprise that more insurers are turning to specialist support. Engaging a debt collection agency NSW or a nationally capable partner provides structure, legal clarity, and operational efficiency. Unlike a general law firm, professional debt recovery agencies are purpose-built for this work.

Let Bluechip Collections Handle the Work

Subrogation is no longer a simple, straightforward task. For busy compensation claims teams, keeping up with each step of the process can be a costly distraction from core responsibilities. That’s why many liability insurers now rely on experts like Bluechip Collections. 

At Bluechip Collections, our team of insurance-focused debt collectors knows how to cut through legal complexity, overcome resistance, and act fast. Whether you’re based in Sydney or need support from debt collectors in Perth, we offer national reach and sector expertise to help you recover debts more efficiently.

Do not let recoverable funds sit idle. Contact us today and recover what’s rightfully yours—faster, smarter, and with less hassle.