Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

CHAPTER 16 – SUBROGATION

The doctrine of subrogation The doctrine of subrogation refers to the entitlement of one person or entity to exercise the rights and remedies held by another person or entity against third parties in relation to a claim. 630 In an insurance context, it is essentially the right of an insurer, once it has indemnified an insured, to exercise any rights or remedies of the insured to recover any claim payment from a culpable third party. Put simply, an insurer can step into the shoes of an insured and pursue the claims or other rights of that insured. The insurer will not obtain any greater rights than the insured itself holds, nor may an insurer commence subrogated proceedings in its own name. 631 Any proceedings and judgment in a subrogated action remain in the insured’s name. Sources of the right of subrogation The right of subrogation is usually expressly stated in the wording of an insurance policy. However, the right exists even if not reduced to writing in the policy. 632 Insurers cannot pursue a claim in the name of an insured unless and until the insured has been fully indemnified under the relevant policy 633 (unless agreed otherwise). Accordingly, the doctrine of subrogation cannot be invoked by an insurer in circumstances where a decision on indemnity has been reserved. However, many policies include an express condition permitting insurers to commence a subrogated claim in the insured’s name, even if negotiations about the extent of the entitlement to indemnity have not been concluded. Subrogated rights In Santos Ltd v American Home Assurance Co, 634 it was held that an insurer who has indemnified an insured has two specific rights: ƒ the right to oblige the insured to pursue a remedy it may have against a third party for the benefit of the insurer; and ƒ the right to recover from the insured any benefit received by the insured in extinction or diminution of the indemnified loss. However, where losses are partially covered, the general position is that an insured is entitled to retain control of the proceedings, although it will ultimately depend on the portion of loss covered. 635 By way of example, in a case where an insurer indemnifies an insured for losses arising from that insured’s breach of professional duties, an insurer will be able to seek to recover those losses from a third party who may also be responsible for causing the loss.

630 Meacock v Bryant & Co [1942] 2 All ER 661. 631 Esso Petroleum Co Ltd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643. 632 Orakpo v Manson Investments Ltd [1977] 3 All ER 1. 633 Santos Ltd v American Home Assurance Co (1987) 4 ANZ Ins Cas 60-795, 74–877.

634 Ibid 74,876. 635 Ibid 74,877.

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