Subrogation

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SUBROGATION

Presented by
Matthew Skinner and Justin Coss

cvjs A0107151124v7 150520

7.8.2006

Page 1

Table of Contents
1.

3

1.1
1.2
1.3

2.

Introduction

3
5
5

Restrictions on the right of subrogation
2.1
2.2
2.3
2.4

3.

The doctrine of subrogation
The source of an insurer's subrogation rights
The exercise of the right of subrogation

Effect of contracts between the insured and third parties
Multiple Insureds
Waiver of Subrogation Clauses
Provisions of the ICA

6
6
8
10
13

13

3.1
3.2
3.3
3.4

4.

Control of proceedings

13
14
16
17

Partially covered losses
Obligations in relation to the pursuit of proceedings
Release of a third party/Settlement
Conduct of the Insurer

17

4.1
4.2
4.3
4.4
4.5
4.6

5.

Distribution of the proceeds of recovery from third parties

17
17
18
18
19
19

The issues relating to sharing of proceeds
Who brought the recovery action
The applicability of policy limits and deductibles
Uninsured Losses
Interest
Effect of s67 of the Insurance Contracts Act and proposals for its reform

Conclusion

cvjs A0107151124v7 150520

22

7.8.2006

Page 2

1.

Introduction

1.1

The doctrine of subrogation
Subrogation literally means the substitution of one person for another1. The term is used to refer to the situation where an insurer, who has extended indemnity to an insured under a policy of insurance, becomes entitled to exercise the rights that the insured has against a third party who caused or contributed to the loss sustained by the insured 2. The doctrine is not administered as a legal right, but as a principle that is applied to serve the ends of justice and to do equity3.

In the insurance context, the doctrine of subrogation is associated with two discreet aspects of the relationship between an insurer and an insured: 1.

the doctrine allows the insurer to exercise, in the insured's name, rights that the insured may have against third parties; and

2.

the doctrine is associated with the principle that an insurer can claim from an insured any double recovery made by that insured.

An example of the latter situation would be where an insurer indemnifies an insured for the total loss of the insured’s house by fire and the insured later recovers damages from a third party who caused the fire. In such circumstances, the insurer would generally be entitled to recover these damages from the insured4.

The doctrine of subrogation only applies to true indemnity insurance, and is generally not applicable to life insurance5 or some forms of personal accident insurance6. This principle was considered in some detail by the Supreme Court of Western Australia (Court of Appeal) in the recent case of Insurance Commission of Western Australia v Kightly7. The defendant in this case, Mr Kightly was a member of the Denmark Volunteer Sea Rescue Group (the "Volunteer group") which formed part of the W.A. Police Service. Mr Kightly was unfortunately seriously injured on 30 May 1998 while participating in a training session conducted by, Surf Lifesaving Western Australia Inc (SLSWA).

1

2

th

Leigh-Jones et al, “MacGillivray on Insurance Law”, 10 Ed (2003) at page 568 Jindra v. Clayton, 247 Neb. 597, 529 N.W.2d 523 (1995); Tri-Par Investments LLC v Sousa 268 Neb 119 (2004). See discussion in CCH Australia Limited, "Australian and New Zealand Insurance Reporter" (2004)

3

Cagle Inc v Sammons 198 Neb 595; 254 NW 2d 398 (1977). See CCH Australia Limited, "Australian and New Zealand Insurance Reporter" (2004)

4

See, for example, Castellain v Preston (1883) 11 QBD 380; British Traders Insurance Co v Monson (1964) 111 CLR 86

5

Solicitors and General Life Assurance Society v Lamb (1864) 2 De GJ & S 251

6

Thobald v Railway Passengers’ Assurance Co (1854) 10 Exch 45

7

(2005) 30 WAR 380; (2005) 225 ALR 380; (2005) 193 FLR 322; (2005) 13 ANZ Ins Cas 61-656; [2005]...
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