Professional Liability Guide

CHAPTER 16 – SUBROGATION

Section 66 may, therefore, defeat any purported subrogated action by an insurer against a co-insured who was also an employee.

Further, section 68(1) of the ICA has the effect that where an insured has entered into an agreement with a third party that limits the right of the insured to recover damages from a person other than the insurer in respect of the loss, an insurer cannot rely on a term or condition in the policy that limits or excludes its liability because the insured has entered into such an agreement, unless the insurer clearly informed the insured in writing, before the contract of insurance was entered into, of the effect of the policy term or condition.

Section 68(2) of the ICA provides that the duty of disclosure does not require the insured to disclose to the insurer the existence of a contract that limits the insured’s rights.

Practical considerations Recovering losses by way of subrogation is an important consideration in seeking to minimise an insurer’s exposure in respect of a claim. However, prior to commencing recovery proceedings, consideration must be given to the anticipated costs of such a recovery action. A recovery action may not be viable if the costs of pursuing that recovery are disproportionate to the amount sought to be recovered.

Further, recovery actions can quite often become protracted, ultimately resulting in additional unforeseen expenses.

Recovery actions are also often important to insureds where the amount of loss indemnified under a policy may impact future premiums paid or where uninsured loss has been incurred. Recovery actions also become central to limiting such losses.

If a decision is made to pursue a recovery action, consideration should be given to entering a sharing agreement between an insurer and the insured. That agreement should set out:

ƒ the strategy and method to be adopted in the recovery action; ƒ a formula for sharing the costs and distribution of damages recovered to avoid any disagreements at the conclusion of the claim; and ƒ a mechanism to resolve any disputes that might otherwise arise between the insurer and insured during the recovery action.

Other important matters to include in a sharing agreement include cooperation clauses and agreed channels of communication and reporting.

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