Subrogation Flashcards
What is subrogation?
The substitution of one person or thing for another
What is subrogation in a legal context?
The right of one party to exercise for his own benefit the rights of another in that party’s name
What is the definition of subrogation in an insurance context? Case law
Castellain v Preston
The underwriter is entitled to the advantage of every right of the assured whether such rights arise in contract, tort of any other condition which is legal or equitable and whether or not the right could be enforced by the insurer in the name of the assured
Which two conditions must be met for subrogation rights to accrue?
- A contract of indemnity (specified sum policies aren’t indemnity)
- Payment of the indemnity - strictly speaking a full indemnity, where the sum paid is less than the loss the insured’s rights do not pass to the insurer
How do insurers overcome the practical difficulty of being unable to pursue their rights under the claim has been settled?
By adding a clause to the policy granting the insurer its subrogation rights before payment is made
How can insurer’s rights be limited? Case law
Mark Rowlands Ltd v Berni Inns Ltd (“the Rowlands principle”)
By the insured entering into a pre-existing agreement with a third party agreeing not to bring a claim against them.
This is a material fact which should be disclosed at proposal stage.
What are the guidelines for landlord’s insurers being able to recover from tenants? Case law
Frasca-Judd v Golovina showed a common intention for the policy to benefit both parties.
1. Court to construe the terms of the tenancy agreement to determine how to parties intended to allocate risk
2. A covenant by the landlord to take out insurance = tenant not liable for an insured loss
3. Strength of 2. depends on other terms in the agreement, incl:
* if tenant required to contribute to premium
* terms relieving the tenant of repairing obligations for insured damage / landlord to spend insurance money on repair
4. The Rowlands principle will defeat a claim brought in negligence (without a clause exonerating the tenant)
Damage elsewhere eg neighbouring properties wouldn’t be covered
What are the two key reasons policyholders need to understand the position re subrogation?
- Only one action can be brought against a third party to recover the loss
- Collection and retention of evidence
Give 5 examples of evidence which may be needed for a subrogated claim
- Statements
- Photos of the damage
- Pre-loss photos
- Forensic report
- Any physical evidence
- Detailed assessment of reinstatement works
- Clear, competitive tendering process
What are three reasons the full amount may not be recovered?
- Difference between basis of cover and legal liability of the TP
- No full duty on TP eg contrib.
- It may be uneconomic to pursue the full loss
- Legal liability may be disputed and a w/out prejudice offer made without an admission of liability
- There may be insufficient evidence for some elements
What principle is applied to payments received where there is an excess and uninsured losses as well as the insurer’s outlay? Case law
Lord Napier and Ettrick v Hunter
‘Pay up and recover down’
Uninsured losses recovered first, then insurer’s outlay, then excess.
What approach would be taken where average has been applied?
This would make the insured and insurer co-insurers and the recovery would be distributed on a pro-rata basis.
