Abstract:
It is a well developed and fundamental principle of insurance law that the insured cannot make profits out of his insurance policy. This is because it will mean he is making profits out of an unfortunate circumstance. The essential premise of subrogation is that an insured person, as the holder of a policy of insurance giving a right to indemnity in respect of covered risks, should not be entitled to recover anything more than the actual amount of any loss suffered. If insured persons were entitled to recover under their contracts of insurance, as well as recover compensation in ordinary legal proceedings from the person who caused the covered loss, an event of loss would represent a potential for windfall gain. The law of insurance, subject to the extensive limitations which are discussed in this paper, does not allow for such a windfall. If insureds were allowed to make any profits out of their insurance policies, then many will be tempted to provoke or precipitate the occurrence of the insured peril. This is to say that the insured peril may in most cases not occur as a natural cause or a force majeure but through manmade provocations. This may be so because, the insured that is very sure that the occurrence of the insured peril will offer to him a huge fortune through profits from the insurance policy will in most cases do anything to provoke the occurrence of the insured peril.
For example, it will be common to see a person who has insured his house or other property against every risk of fire, provoke fire on these properties simply because he knows a fortune is coming his way as a result of his fire policy. This is part of the reasons why the doctrine of contributory negligence was introduced in English law. Therefore, this kind of behavior cannot be tolerated from the insured, not only because it amounts to unjust enrichment, but equally because it could damage the properties of third parties and affect their interests too.
Therefore, to avert calamity and danger that could arise from the insured making profit out of his policy the doctrine of subrogation has been instituted. This doctrine has been put in place primarily for the benefit of the insurers. Through this doctrine, the insured relinquishes his rights of action against any third party tortfeasor to the insurer. It is therefore a restitutionary remedy put in place by law at the benefit of the insurer. This is only logical because the insurer who has fully compensated the insured for the damage is now at a loss and the best way through which he could be compensated for this loss is by stepping into the shoe of the insured and claiming compensation from all third party tortfeasors identified to have caused damage to the insured victim. If the insured were allowed to claim from their insurer and then subsequently from third party tortfeasors, it will mean that they are actually making profit from their insurance policy which contravenes the principle of indemnity.
The point of focus of this paper therefore is to do a critical analysis of the present day application of the principle of subrogation both in common law and civil law jurisdictions. In this trend of reasoning, this paper will consider the procedural and substantive aspects of the doctrine of subrogation, from the point of view of an insurer. This inquiry into an insurer’s legal rights of subrogation will examine the numerous statutory, contractual and judicially created rules which limit, or abolish altogether, common law, civil law and statutory rights of subrogation. Another objective of this paper will be to do a critical appraisal of the doctrine of subrogation in insurance as used as a source of reimbursement to insurers. This paper will analyze the notion of subrogation as used in insurance law (part one) and the limitations of the insurer’s right of subrogation (part two).
Abue Ako, The Future of Subrogation: A Review of Procedural and Substantive Aspects (March 7, 2014).
First posted 2014-05-09 06:32:07
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