Certain insureds sought recovery of a sum which was greater than the sum which had been paid to them by their insurers. The insureds had claimed first on the policies of insurance. Their claims had been met. The insureds then pursued an action in negligence against a third party.
Held: On payment by the insurers under the policies of insurance, the doctrine of subrogation had conferred on those insurers an equitable proprietary right in the form of a lien over the settlement monies obtained from the third party. The insurers were entitled to an injunction to restrain distribution of that fund until the amount paid by the insurers had been repaid to them.
Stop loss insurers can prevent payment out before a payment by subrogation. An insured may also agree to carry an excess or franchise, in which case it will have to bear that amount before looking to its insurer, and will as a self-insurer rank last in any recoveries made by way of subrogation from any third party.
Lord Templeman said: ‘It may be that the common law invented and implied in contracts of insurance, a promise by the insured person to take proceedings to reduce his loss, a promise by the insured person to account to the insurer for monies recovered from a third party in respect of the insured loss, and a promise by the insured person to allow the insurer to exercise in the name of the insured person, rights of actions vested in the insured person against third parties for the recovery of the insured loss if the insured person refused or neglects to enforce those rights of action. … In my opinion, promises implied in a contract of insurance with regard to rights of action vested in the insured person for the recovery of an insured loss from a third party responsible for the loss, confer on the insurer an equitable interest in those rights of action to the extent necessary to recoup the insurer who has indemnified the insured person against the insured loss.’
Lord Browne-Wilkinson said: ‘In my judgment therefore an insurer who has paid over the insurance monies does have a proprietary interest in monies subsequently recovered by an assured from a third party wrongdoer. Although many of the authorities refer to that right as arising under a trust, in my judgment the imposition of a trust is neither necessary nor desirable: to impose fiduciary liabilities on the assured is commercial undesirable and unnecessary to protect the insurers interests. In my judgment, the correct analysis is as follows. The contract of insurance contains an implied term that the assured will pay to the insurer out of the monies received in reduction of the loss, the amount to which the insurer is entitled by way of subrogation. That contractual obligation is specifically enforceable in equity against the defined fund (i.e. the damages) in just the same way as are other contracts to assign or charge specific property . . Since equity regards as done that which ought to be done under a contract, this specifically enforceable right gives rise to an immediate proprietary interest in the monies recovered from the third party. In my judgment, this proprietary interest is adequately satisfied in the circumstances of subrogation under an insurance contract by granting the insurers a lien over the monies recovered by the assured from the third party. This lien will be enforceable against the funds so long as it is traceable and has not been acquired by a bona fide purchase of a value without notice. In addition to the equitable lien, the insurer will have a personal right of action of action at law to recover the amount received by the assured as monies had and received to the use of the insurer.’
Judges:
Lord Templeman, Lord Goff, Lord Browne-Wilkinson
Citations:
Gazette 03-Mar-1993, [1993] AC 713, [1993] 2 WLR 42, [1993] 1 Lloyds Rep 197, [1993] 1 All ER 385
Statutes:
Jurisdiction:
England and Wales
Citing:
Appeal from – Napier and Ettrick v R F Kershaw CA 9-Sep-1992
Money held by solicitors for names was subject to subrogation for insurers. . .
Cited by:
Appealed to – Napier and Ettrick v R F Kershaw CA 9-Sep-1992
Money held by solicitors for names was subject to subrogation for insurers. . .
Cited – Caledonian North Sea Ltd v London Bridge Engineering Ltd and Others HL 7-Feb-2002
Substantial personal injury claims had been settled following the Piper Alpha disaster. Where a contractual indemnity had been provided under a contract, and insurance had also been taken out, but the insurance had not been a contractual . .
Cited – Zurich Insurance Plc UK Branch v International Energy Group Ltd SC 20-May-2015
A claim had been made for mesothelioma following exposure to asbestos, but the claim arose in Guernsey. Acknowledging the acute difficultis particular to the evidence in such cases, the House of Lords, in Fairchild. had introduced the Special Rule . .
Cited – Bailey and Another v Angove’s Pty Ltd SC 27-Jul-2016
The defendant had agreed to act as the claimant’s agent and distributor of the claimant’s wines in the UK. It acted both as agent and also bought wines on its own account. When the defendant went into litigation the parties disputed the right of the . .
Lists of cited by and citing cases may be incomplete.
Insurance, Legal Professions
Updated: 09 April 2022; Ref: scu.83210