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Doctrine of Subrogation

Source: Insurance, Banking & Negotiable Instruments Law Teaching Material

The doctrine of subrogation is a corollary to the principle of indemnity and as such, it applies only to property insurances. According to the principle of indemnity, the insured can recover only the actual amount of loss caused by the peril insured against and is not allowed to benefit more than the loss he suffered. In case the loss to the property insured has arisen without any fault on anybody‘s part, the insured can make the claim against the insurer only. In case the loss has arisen out of tort or fault of a third party, the insured becomes entitled to proceed against both the insurer as well as the wrongdoer. 

However, since a contract of insurance is a contract of indemnity, the insured cannot be allowed to recover from both and thereby make a profit from his insurance claim. He can make a claim against either the insurer or the wrong doer. If the insured chooses to be indemnified by the insurer, the doctrine of subrogation comes into play and as a result, the insurer shall be subrogated to all the rights and remedies of the insured against third parties in respect of the property destroyed or damaged. 

Lord Cairns, in Simpson vs. Thomson, defined subrogation as: ―a right founded on the well known principle of law that where one person has agreed to indemnify another he will, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss.‖ According to the doctrine of subrogation, the insurer, after indemnifying the insured for his loss in full, steps into the shoes of the insured and is subrogated to all the alternative rights and remedies that the insured has against the third persons, until the insurer recoups the amount he has paid under the policy. In case something more is recovered under subrogation, the excess shall belong to the policyholder because the insurer is entitled to the assureds’ rights in respect of the subject matter insured as far as he has indemnified the assured. 

The following points are worth noting in connection with the doctrine of subrogation: 

1. This doctrine will not apply until the assured has recovered a full indemnity in respect of his loss from the insurer. If the amount of the insurance claim is less than actual loss suffered, the assured can keep the compensation amount received from any third party with himself to the extent of deficiency, and if after full indemnification there remains some surplus he will hold it in trust for the insurer, to the extent the insurer has paid under the policy. 

2. The insured should provide all such facilities to the insurer that may be required by the insurer for enforcing his rights against third parties. Any action taken by the insurer is generally in the name of the insured, but the cost is to be borne by the insurer. 

3. The insurer gets only such rights that are available to the insured. He gets no superior rights than the assured. As such, the insurer can recover under this doctrine, only that which the assured himself could have recovered. 


R owned two ships, A and B and got them insured with different insurers. The ships collided due to the fault of the crew of ship B, because of which ship A was damaged. The insurer of the ship A indemnified the owner and then sued him as owner of the ship B for negligence, claiming the amount they had paid in respect of ship A. The court held that the insurer could not recover, as both vessels were owned by one and the same person, no remedy has been transferred to the insurer, because a person cannot file a suit against himself. 

Art 683 of the Commercial Code provides that the insurer that has compensated the insured for the financial losses he has suffered because of loss of or damage to property have the right to substitute the insured and to proceed against the third party who caused the damage. This provision transfers to the insurer all the rights and remedies that are available to the insured against the party responsible for the loss or the damage to the property. The extent of right of subrogation of the insurer is limited to the amount of money it has paid to the insured. Therefore, where the insurer has not fully compensated the insured for the losses he has suffered, as in the case of under insurance, both the insurer and the insured may proceed against the third party who is responsible for the loss or damage. The insurer for the amount it has paid and the insured for damage he has not received compensation. 

The law imposes on the insured an obligation to cooperate with the insurer to enable the latter to exercise its right of subrogation and to refrain from any act, which may damage such right or prevent the insurer from proceeding against the third party responsible. For instance, the insured has to provide the insurer with all the necessary information and evidences showing that the third party is responsible for the loss or damage to the property insured. He is also required to refrain from collusive agreements intended to release the third party from liability and assumption of responsibility with the intention of procuring a financial benefit to himself or helping the third party. 

However, the insurer may not exercise its right of subrogation against certain group of people. Art 683/3/ provides that the insurer cannot proceed against ascendants, descendants, and employees, agents of the insured and against persons living with him. This restriction on the right of insurer is not totally acceptable and is not based on legally justifiable grounds. 

As the insured does not have remedy against his minor children, his employees and agents who caused damage to the property while performing their duties and while acting within the scope of their power/ Art. 2130, Art 2222/, the restriction on the right of the insurer is based on acceptable legal ground and appropriate. However, preventing the insurer from proceeding against the ascendants and descendants of the insurer who are not his dependants and who may have their own businesses, for instance, does not seem to be legally explainable.            

The primary purpose of subrogation is to make sure that insurance is a means of compensation or reinstatement of the insured who has suffered a financial loss and not a mechanism to make a net profit out of loss or damage covered by insurance. It denies the insured the opportunity to claim payment twice, from the insurer on the basis of the contract of insurance and the third party who is responsible for the loss or damage to the insured object on the basis of tort law, for instance, and thereby making a net profit. 

Secondly, it is also intended to make sure that the third party /the tort feasor/ does not escape liability because the owner of the property happens to have insurance and bears the consequence of his negligence or intentional act. 

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