Paper: Insurance & Reinsurance - Double insurance, contribution and subrogation basic principles

In brief: Partner Oscar Shub and Senior Associate Jenny Priestley discuss Subrogation – basic principles and issues and Double insurance and contribution - basic principles and issues.

Presented in Sydney on 4 June 2008 at an Insurance & Reinsurance Forum

Subrogation literally means the substitution of one person for another. The term is used to refer to the situation where an insurer, who has extended indemnity to an insured under a policy of insurance, becomes entitled to exercise the rights that the insured has against a third party who caused or contributed to the loss sustained by the insured. The doctrine is not administered as a legal right, but as a principle that is applied to serve the ends of justice and to do equity.

In the insurance context, the doctrine of subrogation is associated with two discreet aspects of the relationship between an insurer and an insured:

• the doctrine allows the insurer to exercise, in the insured's name, rights that the insured may have against third parties; and
• the doctrine is associated with the principle that an insurer can claim from an insured any double recovery made by that insured.

An example of the latter situation would be where an insurer indemnifies an insured for the total loss of the insured’s house by fire and the insured later recovers damages from a third party who caused the fire. In such circumstances, the insurer would generally be entitled to recover these damages from the insured.

The doctrine of subrogation only applies to true indemnity insurance, and is generally not applicable to life insurance or some forms of personal accident insurance. This principle was considered in some detail by the recent decision of the Court of Appeal of Western Australia in Insurance Commission of Western Australia v Kightly.

For more, download the paper (as an adobe acrobat pdf – 60KB)

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For further information, please contact:

Oscar Shub Partner, Sydney Ph: +61 2 9230 4305 Oscar.Shub@aar.com.au

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