INSURANCE 1.8 CONTRIBUTION, SUBROGATION AND INDEMNITY
SUBROGATION.
According to the Black’s Law Dictionary, subrogation is the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies or securities. Where the insurer wishes to recover the amount they paid to the insured from the actual wrongdoer. E.g. A is injured by B. C (A’s insurer) pays A $500. B (the tortfeasor) also pays A $400. Subrogation would occur where A seeks to collect the $400 paid by B to A.
As was noted in Castellain V Preston: it is a principle of indemnity which prevents unjust enrichment so that the insured gets no more and no less than full indemnity. In this case the court prevented the insurer from recovering both insurance money for the house burnt by fire and receipt of purchase price. The scope covers anything that diminishes the loss. Except it is intended to be a pure gift. Note the following:
:: This doctrine applies only to contracts of indemnity: thus it would not apply to life policies. Subrogation cannot apply to life insurance.
:: The insured must have suffered a loss to which the wrongdoer is liable. There are certain defences that can avail the wrongdoer. The insured must have a right of action against the wrongdoer.
:: The insurer must have paid out under the policy or at least admitted liability. In Page V Scottish Insurance Corporation, the court held that the insurers could not subrogate since they denied liability. Except parties agreed to the contrary.
:: Payment must be connected with the subject matter of the insurance. Meaning that payment must be within the scope of insurer’s liability.
:: Subrogation would only apply where the insured could have made the claim-Weide and Co V Hashim Hashim.
:: The insurer is to proceed in the name of the insured.
:: It should be established that it is just to shift the burden from the insurer to the wrongdoer. Else, equity would intervene.
Note however that the insurer cannot recover more than he paid out/agreed to pay. In Yorkshire Insurance Co V Nisbet Shipping Co, the insurers paid E72,000 for total loss. The insured was subsequently paid over E126,000 pounds by the wrongdoer. The court held that the insurers cannot recover more than the E72,000 which they had paid.
Differences between subrogation and the principles of savage and abandonment: Salvage and abandonment applies to physical things while subrogation is concerned with legal rights. Salvage entails surrender of what is left of the spoil (in the case of partial loss) to the insurer and get full compensation. Therefore, in the event of partial loss, the insured can abandon the insured subject matter and accept full indemnity under the doctrine of constructive total loss. Section62 and 63 requires the insured to give notice of election to abandon. Another difference is that in the cases of abandonment, the insurer steps into the shoes of the insurer in respect of obligations and rights over the property. However, under subrogation, the insurer must do so in the name of the insurer.
If the insurer has been paid by another, the insurer can take the payment into account and pay the difference between what the third party gave to the insured and the insured sum rather than subrogate. The insured must cooperate with the insurer and disclose relevant information. Else… damages. He should not in any way compromise the interest of the insurer.
CONTRIBUTION AND DOUBLE INSURANCE.
Just like subrogation seeks to prevent unjust enrichment. Subrogation exists between the insurer and insured while contribution exists between two insurers.
Double insurance is where an insured has two or more policies with different insurers in respect of the same risk. The insured can recover from one insurer. In such case, the paying insurer can ask the other insurer(s) to contribute. Explained in Weide and Co V Hashim V Hashim as where the same person insures the same interest with more than one office. This would not relate to another third party’s interest.
For contribution to apply:
:: The same property or liability must be covered against the same risk under different policies with different insurers.
:: All the policies must be valid and enforceable.
:: Although the policies need not be the same, both or all the insurers must be liable based on the facts and circumstances.
RATIO OF CONTRIBUTION.
There is no strict approach. Depending on the nature of insurance and facts of the case.
The maximum liability approach/Value insured: looks at the amount insured with each insurer and it shall determine the ratio of contribution. E.g. 30k with insurer A and 70k with insurer B, they would contribute at a ratio of 3:7.
The Independent Liablility approach: determined based on the proportion of the insured’s loss to the liability of the insurer independent of the liability of the other insurer. This approach was applied in Commercial Union Assurance Co V Hayden.
Equality: based on the equitable maxim equality is equity.
In practice, insurers often insert a clause excluding liability if there exists another policy covering the same liability with another insurance company. This was done in Gale V Motor Union Insurance Co although the court still held that each insurer was to contribute a rateable proportion of any money payable.
It is argued that since he paid double premium, why would he be deprived of double cover?
