When Beth is paid $25,000 by her insurer, what does she do with her right to collect damages from Sarah?

The correct answer is that Beth transfers her right to collect damages from Sarah to her insurer when she is paid the $25,000. This concept is based on the principle of subrogation, which allows an insurance company that has compensated its insured for a loss to pursue recovery from the party responsible for that loss.

When Beth received the payment from her insurer, she effectively assigned her right to sue Sarah for the damages that caused the loss. This transfer allows the insurance company to manage the claim against Sarah directly, seeking to recover the amount it paid to Beth. This process helps prevent Beth from receiving a double recovery, whereby she would benefit from both the insurance payout and a separate recovery from Sarah for the same damages.

The other options do not align with the standard practice in insurance subrogation. Keeping the right would imply she could pursue Sarah independently, sharing it would not appropriately reflect the insurer's ability to seek recovery, and losing the right entirely would contradict the idea that the insurer takes on the claim through the process of subrogation. Therefore, transferring the right is the appropriate action in this context.