Private Law Theory

ABSTRACT
As climate change intensifies wildfires, floods, and other catastrophic events, homeowners insurance has become a critical site for allocating the resulting losses, owing to its economic significance for millions of Americans. Yet, debates over insurance reform have focused largely on pricing, availability, and public backstops, overlooking the governance role played by insurance doctrine itself. This Article identifies subrogation as an underappreciated but important feature of insurance law and reconceptualizes it as a mechanism of private risk governance.

Subrogation is conventionally understood as a contractual right allowing insurers to ‘stand in the shoes’ of their insureds and seek reimbursement from responsible third parties. In the climate context, however, subrogation does more than recoup losses. By pursuing claims grounded in negligence and other liability theories, insurers can reallocate costs to risk-creating actors like utilities and contractors, discipline harmful activities, and influence future risk management through an ex post, privately enforced mechanism. In this way, subrogation embeds insurers within a broader system of climate-risk governance that extends beyond their relationships with policyholders. This Article further identifies and analyzes a growing market for subrogation claims, in which insurers increasingly sell their subrogation rights to hedge funds and private equity investors to generate short-term liquidity. It argues that this financialization undermines subrogation’s governance capacity. Treating subrogation claims as speculative assets extracts them from the regulatory and institutional contexts that give them informational and disciplinary force. As a consequence, feedback loops linking subrogation recoveries to pricing, underwriting, and regulatory oversight are severed. While insurers operate within a regulatory framework that incentivizes them to ‘play for rules’ that mitigate future climate risk, financial intermediaries are incentivized to ‘play for rents’ by maximizing short-term recovery. This Article concludes by proposing legal and legislative reforms to preserve and strengthen subrogation’s governance function.

Saad, Aisha, Subrogation as Climate Governance (March 25, 2026).