Subrogation and contribution

Question 1

What types of policies does subrogation and contribution apply to ~?

Answer 1

Indemnity policies

Question 2

What does indemnity mean in terms of amount paid?

Answer 2

Cant profit from a claim ie be more than you lost.

Question 3

What is subrogation?

Answer 3

You cant be better off from a loss than you started.
It refers to the right of an insurer who has indemnified ie paid the insured a loss to recover the money or part of the money by taking over (stepping into the shoes of) the insured to seem any alternate indemnity the insured possesses.

Question 4

What is the main purpose of subrogation?

Answer 4

Prevention of unjust enrichment of the insured ie the principle of equity.

Question 5

What happens when the insured has been successful in recovering the same loss twice?

Answer 5

They are obliged to pay any surplus back to insurers to follow the principle of indemnity

Question 6

Does the insured need to be indemnified before subrogation can occur?

Answer 6

Under common law yes however some insurance contracts will modify this rule in order to begin the subrogation process promptly.

Question 7

Do gifts need to be paid to insurers under subrogation?

Answer 7

No as they are assumed to be for the sole purpose of the insured not the insurer.

Question 8

Who is a subrogation action brought under?

Answer 8

The insureds name with the exception when insurers sue under the Rights Compensation Act 2016.

Question 9

When an isurer sues under the Rights Compensation Act 2016 whos name is it under?

Answer 9

There own not he insured.

Question 10

Can an insurer right an action for subrogation for part of the loss or does it need to be the whole loss?

Answer 10

Whole loss as only one action is permitted by law.

Question 11

Insurers may included a duty of assured clause - in relation to subrogation what is this?

Answer 11

Requires insured to take steps to preserve the insurer’s subrogation rights.

Question 12

What happens when the recovery is equal to the loss?

Answer 12

The whole loss will be borne by the third party, the insurer will keep the whole balance including the excess for the insured.

EG - insurers pay £500 loss to insured, recover £500 from TP, insurers keep the full £500.

Question 13

What happens when the recovery is greater than the loss?

Answer 13

Insurer gets the surplus.

eg. Insurer pay £500 for a loss to the insured, recovers $700 from a canadian company, converts to £ and they have £900, the insurer can only keep the £500 paid to the insured and the insured gets the £400 surplus.

Question 14

What happens when the recovery is less than the loss?

Answer 14

EG insured suffered a £5000 loss but the insurers paid out £4750 as there was a £250 excess, if the insurers could only recover £4000 (the TP maybe was insolvent) then the insurer can keep the full £4000 .

Question 15

What is an ex-gratia payment?

Answer 15

Where legally the insured is not due any money but the insurer has made a commercial decision to indemnify them - payment out of favour.

Question 16

Can insurers seek subrogation on ex-gratia payments?

Answer 16

No as they did not legally have to pay it at all.

Question 17

What are the three ways subrogation rights can arise?

Answer 17

Tort
Contract
Statute

Question 18

What is the most common way subrogation rights can arise out of tort?

Answer 18

Accidental damage by a third party
Tort of negligence

Question 19

How can subrogation rights arise out of contract?

Answer 19

Sometimes contracts have a contractual right to recover and insurers can enforce this right for their own benefit.

EG Hold Harmless agreements

Question 20

How can subrogation rights arise out of statute?

Answer 20

Best example is the Riots Compensation Act 2016

A property damage claim of say a shop that received damage during a riot can be recovered from the police if they did not do enough to protect the property in question during a riot.

Question 21

What are the two most common modifications to subrogation rights?

Answer 21

Market agreements and subrogation waiver clauses

Question 22

What is a market agreement - subrogation?

Answer 22

Where subrogation rights are modified through an agreement.

Insurer gives up their right to recover from a third party if this is likely to be a pound swapping exercise.

Often in motor insurance.

Question 23

What are two other names for market agreements - subrogation?

Answer 23

Knock for knock agreements
Immobile agreements.

Question 24

What is a subrogation waiver clause?

Answer 24

Written into the policy stating that the insurer agrees with a particular insured that they will not exercise their rights against certain other parties or persons who are associated with the insured.

EG parent and subsidiary companies

Question 25

What happened in the Lister v Romford Ice Cold Storage case and what it is an example of?

Answer 25

Father and son worked together
While driving a wrk vehicle the son ran over the father causing injury
Insurers paid out for fathers injuries under an EL policy
but recovered it from the son

It is now generally agreed that insurers will not recover monies from negligent fellow workers.

Question 26

What is contribution?

Answer 26

Right of an insured to call upon other similarily but not necessarily equally liable to the same insured to share the cost of an indemnity payment

Question 27

What 5 conditions must be met for contribution to arise?

Answer 27

1. 2+ policies of indemnity must exist
2. Common subject matter
3. Common Peril
4. Common interest
5. Each policy must be liable for the loss.

Question 28

What is a contribution clause?

Answer 28

Sets out how a loss is to be met if the insured has another policy which covers it

Question 29

What is a non contribution clause?

Answer 29

Most common clause.
If there are two policies covering the same loss one may have a non-contribution clauses which states they are no liable if another policy exists.

If one policy has it and the other doesn’t, the one without is liable.
If they both have it, its cancels each other out and both jointly liable.

Question 30

What is an escape clause?

Answer 30

Strictly forbids the insured from taking out any other policies without the insurers consent, in which case it calls to the other insurer to pay for a loss.

If 2 policies have an escape loss then the 1st is liable as the 2nd should never have existed.

Question 31

What is a more specific policy condition?

Answer 31

Something specific like gadget cover.

So specific that a more specialist insurance clause is likely to be applicable and this releases another other policy like a general household policy from there liability until the specific policy has been exhausted.

Question 32

What is a ratable proportion clause?

Answer 32

States the insurer will be liable for a ratable portion of any loss that is also insured by another policy.

Question 33

What are the two methods of contribution calculations?

Answer 33

Maximum liability method
Independent liability method

Question 34

What market agreements are there for contribution?

Answer 34

Its a method of contribution modification and there could be:

1. Insurers may agree to share the loses in cases where contribution does not arise in law
2. Waive rights of contribution in cases where such a right clearly exists so one insurer will borne 100% of the liability to prevent disputes between insurers and reduce admin costs.

Question 35

What happened in the Kind and Queen Granaries case and what is it the leading example of?

Answer 35

Leading case in there must be a common insurable interest for contribution to arise.

Grain was at a TP property, the bailee and the owner both insured the grain. A fire destroyed it all, as both insureds have different interests in the grain, contribution does not arise.

Question 36

What is the maximum liability method?

Answer 36

1 of 2 ways to work out contribution.
Also know as sum insured method.
Mostly used in property cases where average does not apply and the loss does not exceed the sum insured on any policy.

PolA/total insurance sum insured x loss
PolB/total insurance sum insured x loss ect to 100%

Question 37

What is the independent liability method?

Answer 37

Each approached as if there policy is trhe only one in force.
Used for liability cases/where average applies/loss exceeds a limit under one policy/inner limits.

Policy limit or loss whichever higher/ total sum of all pols towards loss x loss.

Fire -20k damage

Pol A limit 15k
Pol b limit 30 k
Total sum of pols = 15k + 20k(limited to loss)= 35k

PolA = 15/35 * 20 = 8571
PolB = 20/35*20k = 11429