Law of Contract
It is trite law that an insurer under a contract of indemnity insurance, who has satisfied the claim of the insured, is entitled to be placed in the insured’s position in respect of all rights and remedies against other parties which were vested in the insured in relation to the subject-matter of the insurance1.
Where the insured has proceeded against the third party after the insurer had paid out the claim and without the insurer’s authority as happened in Visser v Incorporated General Insurances Ltd2, there is an important difference between the situation where the third party paid to the an insured person only that part of the damages suffered by the insured as is not covered by the policy and this is done pursuant to an agreement that such payment was without prejudice to the right of the insured to seek payment of the balance (of damages suffered) from the third party, and the situation where there is no such agreement3.
Where there is no such agreement, the compromise between the insured and the third party effectively extinguishes the claims of the insured against the third party and leaves nothing further for the insured to cede to his insurer, but where there is such an agreement, it is simply an agreement between the insured and the third party to settle a part of the claim and defer the other part for later adjudication, if necessary; it does not prejudice the insurer at all4.
Where an insured has no claim against a third party, there is no right to cede to the insurer, and thus the insurer has no right against the third party either. For example if A leases a premises to B, and B is under an obligation to return the premises in the same condition of good repair as it was received from A, and the right of A to claim such return only arises upon termination of the contract, A has no claim against B if the contract has not been terminated. Therefore the insurer cannot subrogate a claim in contract as the insurer cannot assert against B a claim which A
Where the insured has proceeded against the third party after the insurer had paid out the claim and without the insurer’s authority as happened in Visser v Incorporated General Insurances Ltd2, there is an important difference between the situation where the third party paid to the an insured person only that part of the damages suffered by the insured as is not covered by the policy and this is done pursuant to an agreement that such payment was without prejudice to the right of the insured to seek payment of the balance (of damages suffered) from the third party, and the situation where there is no such agreement3.
Where there is no such agreement, the compromise between the insured and the third party effectively extinguishes the claims of the insured against the third party and leaves nothing further for the insured to cede to his insurer, but where there is such an agreement, it is simply an agreement between the insured and the third party to settle a part of the claim and defer the other part for later adjudication, if necessary; it does not prejudice the insurer at all4.
Where an insured has no claim against a third party, there is no right to cede to the insurer, and thus the insurer has no right against the third party either. For example if A leases a premises to B, and B is under an obligation to return the premises in the same condition of good repair as it was received from A, and the right of A to claim such return only arises upon termination of the contract, A has no claim against B if the contract has not been terminated. Therefore the insurer cannot subrogate a claim in contract as the insurer cannot assert against B a claim which A