Danmar

Subrogation
October 31, 2018.
According to Brett LJ1 in Castellain v Preston, Subrogation is the flip side of
indemnity in that the insurer will reimburse himself after he has indemnified
the assured. The sole purpose of the principle is to ensure that the assured
does not receive anything more than his full indemnification i.e it ensures he
does not make a profit. Therefore the insurer will be entitled to succeed in a
claim in all the ways and means e.g. tort or contract in the same way the
person indemnified might have protected himself by bringing a claim against
the third party that caused the loss. Put another way, the insurer will then
stand in the shoes of the insured and assumes his rights, responsibilities and
remedies that the insured has against third parties.
Additionally, whether the loss is partial or total, after indemnification the
insurer will be entitled to subrogation. However under section 79 (1) of the
Marine Insurance Act 1906 where the insurer pays for a total loss he becomes
entitled to take over the interest of the subject matter in addition to being the
holder [or subrogated] to all the rights and remedies that the assured had
within the subject matter. Subsection 2 on the other hand provides that when
the insurer pays for a partial loss suffered by the assured, the insurer he does
not become the title owner of the wreck but he still enjoys the remedies and
rights which he may use recover to in the extent that the insured could have.
When does subrogation arise and its effects
According to the case Commercial Union V Lister2 until the insured
indemnified the insured himself retains the right to sue the third party that
caused the loss. However, when there is full indemnification of the assured the
insurer's right to subrogation will arise, in that he inherits the right and
remedies to sue the third party for the loss where the assured has taken it
upon himself to sue the third party he has obligation to account to the insurer
for any profits made. This was examined in the case of Yorkshire Insurance v
1" the purpose f the doctrine of subrogation is for the benefit of the insurer to prevent the
assured from receiving anything more than a full indemnification".

2 in this case the assured undervalued the subject matter and upon loss sued the third party
in his own name.
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Nisbet where a ship insured for value. She became a total loss when she
collided with a Canadian government ship. The insurers paid the assured the
total value of the loss under the policy. The assured however sought
compensation from the Canadian government under an independent suit.
Coincidentally the pound sterling fell and when paid by the Canadians the
assured made huge profits .After being confronted by the insurer the assured
only wanted to account to him the sum insured and keep the balance. The
court held that all the profits under the independent suit should be handed to
the insurer as the assured was already indemnified and under the principle of
subrogation he could not keep the profits.

Modifying the principle of subrogation

As the principle of subrogation seeks to reimburse the insurer for the
indemnification he provided to the assured where he waives this right it is said
that he modified the principle of subrogation.
1) Agreement
Where there is a knock for knock agreement the principle of subrogation
cannot be applied as such it is modified. This was examined in the case of
Morley v Moore where two parties to a car accident equally at fault are
signatories to a comprehensive motor contract of insurance. Since both were
at fault the respective insurer of parties had an agreement known as a knock
for knock agreement where the damage to each vehicle was borne by its
owner's insurer. The assured though indemnified still sought to sue the other
driver for his negligence. The court held that where both insurers agreement
to individually indemnify its insured the principle of subrogation cannot
exercised a such the principle is modified
If, however the policy covering the vehicles was void then the knock for knock
agreement would fail and the principle of subrogation would arise.
2 ) Terms of the policy
Where the terms of the insurance policy as between the assured and insurer
excludes the principle of subrogation the insurer is debarred from afterwards
asserting this right. This was examined in the case Blaauwpot v Da Costa
where there was certain damages to a ship the insurer having settle the loss
with the assured renounced all its benefits and rights of subrogation under
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the policy . The assured later sought to sue the party who caused the damage
and made significant profits .The court held that since the right of subrogation
was abandoned the assured was entitled to hand the money over to the
insurer where he made a profit. Therefore this was a modification to the
principle of subrogation.
3) Conduct
Where both the insurer and insured by their conduct has deemed to agree to
abandon the right of subrogation, the insurer is estopped from thereafter
seeking to utilize the right to sue the third party. Infact to do so would be
inequitable in the eyes of the court. Therefore the assured is not to prejudice
the insurer rights to subrogation as doing so will result in a modification This
was examined in the case of West of England Fire Ins. Co. v. Isaacs where a
warehouse was let out under a lease which was insured, by both the lessor
and lessee against fire under separate policies. Fire subsequently damaged the
premises due to the negligence of the lessee, the lessor by his conduct agreed
not to bring an action against the lessee for breaches of covenant to cause
damage to the property since both recovered from his insurer. The court held
that the actions of the lessee showed that he renounced his rights of remedies
against a the lessor would debar the insurer from exercising his right of
subrogation.
4) Void policy
The general rule is that all insurance contracts are policies of indemnification,
therefore where the contract is a mere wager it will be void and the right of
subrogation will not be allowed to operate. This was examined in the case John
Edwards v Motor Union where a vessel was insured under a marine insurance
contract which turned out to be a wager, was runned into and sunk by another
ship whose owners admitted liability. The insurer paid the assured the sum
stated in the policy and then sought to make a claim against the owners of the
wrongdoer ship under the principle of subrogation. The court held that the
insurer could not claim as what existed was not a contract of insurance but a
mere wager. Since a wager is void, the right of subrogation was extinguished as
such this amounted to a modification.
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5) Co-insurance
Where two persons are assureds under a policy for their joint benefit, where
there is a loss cause by one to the other's interest, the insurer cannot be
subrogated. The classic example is where a bailee holds goods for a bailor and
both are assureds who ensured the goods. Where the bailee causes some lost
here cannot be subrogation rights on the same bailee. This was examined in
the case of Petrofina (U.K.) Ltd. v. Magnaload Ltd. [1983] a contractor
covered himself along with his sub contractor in an insurance policy. Both of
them were contracted to construct an extension to an oil refinery. An accident
occurred while the lifting equipment due to the negligence of the
subcontractor. The insurer then sought to sue the subcontractor however the
court held that A sub-contractor covered under a main contractor’s policy could
not be sued by an insurer.

Instances where the right of subrogation arise

Once the assured has being indemnified, the insurer has a right to sue for
under tort, contract, statute and subject matter when exercising his right to
subrogation.
1)Rights in Tort
Where the tort committed by a third party is causes the assureds' loss ,
immediately after indemnification the insurer will stand in the assured shoes in
order to seek a remedy of damages for negligence from the third party
(tortfeasor). This was examined in the case Horse Carriage v Petch where the
insured vehicle was damaged in a collision due to the negligence of a third
party. After indemnifying the insured the insurer brought a claim for damages
against the third party under the tort of negligence for the destruction of the
car.
2) Rights arising out of Contract
Where there is loss under a contract by a third party, immediately after
indemnification of the assured, the insurer can personally sue the third party
for the loss under the contract. This was examined in the case of NORTH
BRITISH V. LONDON INSURANCE COMPANY in this case the assured
contracted with the insurer for loss of grain and wheat. The assured later
entered into a bailment contract with some wharfingers for the transportation
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of the wheat. However while in the custody of the bailee/wharfingers fir

damaged the goods and the bailee was primary liability for the loss of the
goods .The insurer indemnified the assured and then sued the wharfingers for
a breach of contract of bailment for the amount they paid to the assured for
the loss
3)Right under Statute
Where a statute provides for the right of subrogation the insurer may rely on
its provisions as authority when exercising its right of subrogation. This exists
in the Riot Act 1886 s2(2) which provides that insurer is entitled to
subrogation where there is destruction or damage to property as a result of a
riot by a third party.
4) Rights over the subject matter
Where there is total loss and the assured is indemnified and what remains is a
wreck of the subject matter of some but is of some value. The rights of
ownership will pass to the insurer to diminish the loss to itself as the wreck
maybe resold on the market at particular value and also to ensure that the
assured enjoys full indemnity and still enjoys a profit from retaining the
salvage. This was examined in the case of Raknin v Potter where a ship during
a voyage was totally destroyed as such its owner, the assured, was fully
indemnified but wanted to keep the wreck of the ship. The court helld that it
was not vested in the insurer as the assured was fully indemnified and to
otherwise would provide the assured with a profit.
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Duties of the assured

The assured has a duty to the insurer to do the following :

1) Duty to give assistance to the insurer

The assured owes a duty to ensure that he assists the insurers in enforcing
their claims against third parties in respect of loss. Thus the assured has duty
to permit them to use his name in an action. Therefore, where the monies
paid over by the third party was not for the loss, the assured could not be said
to be in breach of this duty where he refuses to allow the insurer to use his
name in a claim. This was examined in the case of Burnand v Rodocanachi
(1882) where the assured took out a valued policy on his cargo against war
risks. The cargo was later destroyed by an American cruiser. The underwriters
later indemnified the assured. Under a subsequent Act of Congress which
created a compensation fund for persons with no insurance as a gift the
assured was paid for the damages. However under the Under the Act, no claim
was allowed by or on behalf of any insurer either in his own right or in that of
the party insured. The court held that based on the statute the money was a
gift and no claim could be brought against the US government in relation to
the any loss by the cruiser.
Similarly, the assured should not try to enforce any claim arising out of the
loss by himself without the insurers permission and if he does so and makes a
recovery he has to give an account to the insurers. This was examined in the
case of Darell v Tibbits 1880 due to the negligence of a third party gas pipes in
a street exploded causing fire damages to assureds' house. The tenants of the
house obtained compensation from the third party(corporation) for the
damage so done and repaired the premises. But it happened that the landlord
had insured the house with the insurer by a policy against fire covering injury
by gas explosion. The insurer unaware of the compensation by the corporation
paid the policy money. But when they heard that the tenants had put the
house all right again, they claimed a return of their money. The court held that
where the assured was entitled to an account of this money paid to the
tenants as the assured was already indemnified.
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2) Duty not to prejudice the insurers right to subrogation

The insured has a duty not to prejudice the insurers right to subrogation by his
conduct. This was examined in West of England Fire Ins. Co. v. Isaacs where
a warehouse was let out under a lease which was insured, by both the lessor
and lessee against fire under separate policies. Fire subsequently damaged the
premises due to the negligence of the lessee, the lessor by his conduct agreed
not to bring an action against the lessee for breaches of covenant to cause
damage to the property since both recovered from his insurer. The court held
that the actions of the lessee showed that he renounced his rights of remedies
against a the lessor as such as he was prejudicing the insurers right to
subrogation.Similarly he must not do so by entering into compromises to
diminish the third party's liability. This was examined in the case of Phoenix
Assurance Co. v. Spooner [1905] 2 K.B. 753 Where Insured owned a house
and two shops in Plymouth who later sought to convey them to them to the
Plymouth Corporation, however just before they were conveyed they were
destroyed due to the purchaser's negligence. The insurers then paid the
insured. When the Corporation took over the property, and a compromise
was agreed that the price to be paid if the purchaser was to be sued would be
diminished as the assured would take into account payment received from the
insurers. The court held that by this compromise the assured was ultimately
prejudicing the insurers right to subrogation.