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Report No. 21

Clause 80

General.-This deals with subrogation.

Corresponding provisions in Indian Law.-Section 79(1) of the English Act corresponds to section 135A(2), Transfer of Property Act, 1882. Section 79(2) corresponds to section 135A(3) of the Transfer of Property Act. Section 135A(2) and (3) should be deleted since their substance is being incorporated in the clause under discussion.1

Doctrine explained.-Subrogation has been defined as "the right of the insurer on payment of loss to stand in the shoes of the assured and to avail himself of his rights and remedies". The object behind the rule is to prevent the assured from being indemnified for his losses from two or more sources and thus obtaining profit from the loss.2

Analogous provisions.-Compare the right of subrogation given to persons interested in immovable property who redeem a mortgage (section 92 of the Transfer of Property Act, 1882). That section says that the person concerned shall "have, so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee' etc. Compare section 146 of the Indian Contract Act, 1872, under which a surety (by the payment of his liability) is invested with all the rights which the creditor had against the principal debtor.

Distinction in subrogation, total and partial loss.-Where the insurer pays for the whole loss, he takes over the interest of the assured in what remains and thus is entitled to the proprietary rights. In the case of partial loss, however, title in the subject-matter does not pass to the insurer but he gets all rights and remedies of the assured in and in respect of the subject-matter insured.

Letters of subrogation.-In practice, "letters of subrogation" are executed by the assured, laying out the rights of the insurer and binding the assured to lend his name to any proceedings which the insurer might take against third parties liable for the loss.

Without benefit of salvage.-Sometimes a clause "without benefit of salvage to the insurer" is inserted. Under such clause, proprietary rights of the assured are not transferred to the insurer.3

Abandonment and subrogation.-Section 61 of the English Act provides that in the case of a constructive total loss the assured may treat the loss as a partial loss, or, at his option, abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss. The following points of difference between the two can be noted:-4-5

(i) In abandonment, the insurer has the property vested in him including proprietary rights and liens. In subrogation, he is entitled to the rights of action arising out of the loss; "Abandonment is the transferring of ownership in the thing insured from the assured to the underwriter Subrogation involves no change of ownership but is a right (which) the underwriter has to stand in the shoes of the assured

(ii) In abandonment, the rights follow on a valid abandonment, while in subrogation they arise on payment of the loss;.

(iii) Abandonment applies only in cases of total loss, while subrogation applies both to total and to partial losses;

(iii) Abandonment applies only in cases of total loss, while subrogation applies both to total and to partial losses;

(iv) Subrogation entitles the insurer to transfer of rights and remedies only in respect of the losses, while abandonment implies complete giving up of the subject-matter itself, leaving it to the insurers to decide whether they would take it over or not.

Making profit out of subrogation-Query.-The position as to whether an insurer, having paid the of loss can, by virtue of subrogation, claim more than what he has paid, is not very clear. See the under-mentioned cases.6-7-8, Lord Wright, M.R., has in a case before the Court of Appeal9 agreed with the observations of Swinfen Eady, LJ.,10 to the effect that the insurers can, by subrogation, recover upto the amount of the insurance. The point was, however, not material in either case because in both cases the sum claimed by the insurers was less than the amount insured.

Increased value policy.-When the assured, after taking out one policy, takes out an increased value policy'11, and the original policy does not contain a clause expressly or impliedly permitting additional insurance, then the increased value insurer cannot claim any share in the salvage (if the original insurer received any salvage). This was laid down by the Court of Appeal.12 In that case, a cargo carried on a certain steamer was insured under an ordinary policy and also under an increased value policy. (But the ordinary policy did not contain any clause for increased valuation or permitting additional insurance). The steamer was stranded, and both insurers paid for a total loss and took letters of subrogation from the owners.

The insurers under the ordinary policy paid a sum of £ 685. On a general average adjustment being made, £ 532 and odd was agreed as the sum arising as salvage to be received by the owners. This sum was claimed by the insurers -under the ordinary policy, but the insurers under the increased value policy claimed to share rateably in the salvage. It was held, that the insurers under the ordinary policy were entitled to the whole Hum Cf £. 532 and odd. As was pointed out by Lord Wright M.R,13 the first insurance was for the whole of the subject-matter for its full value, and the insurers were entitled to the full rights of subrogation; and any attempt by the owner of the goods to dispose of the value of those rights would be futile.

If the original policy had contained a clause to the effect that in the event of any additional insurance being placed by the insurer the value of the cargo would, in the event of loss or claim, be deemed to be increased to the total amount insured at the time of the loss or accident, then the subsequent insurer would rank in pari passu with the main policy; but there was no such clause here. (Curiously enough, in this case, it was the increased value policy that contained such a clause-which benefited no body).

It was further observed by Romer L.J.,14 and Scott L.J.,15 that at the time when the increased value policy was effected, the first insurer had already become entitled to a contingent right to receive any sum which might be recovered as salvage. Of this right, the insurer could not be deprived by the assured. Scott L.J., further pointed out, that since there was no increased valuation clause in the first policy, the assured was estopped from alleging that the subject-matter of the insurance ever had any increased value; and if the assured was estopped, the subsequent insurer was also similarly estopped.

1. For a discussion of the circumstances under which section 135A was introduced, see note under clauses 52-53.

2. Dover, p. 441.

3. See also notes under section 4, proviso, of the English Act-clause 9.

4. F.G. Hogg, cited in Dover, p. 447.

5. See also Keate, p. 98.

6. North of England Iron Steamship Insurance Association v. Armstrong, 1870 LR 5 QBD 244 (valued policy-ship worth £ 9,000 but valued and insured at £ 6,000-E 6,000 paid-owner recovers £ 54000 from guilty vessel-held, insurers could claim the whole sum as the owner was (estopped by his under-valuation from denying the real value.)

7. Goole and Hull Steam Touring Co. Ltd. v. Ocean Marine Insurance Co. Ltd., cited in Dover, Handbook to Marine Insurance, 1957 Edn., p. 446.

8. Case of Glen Line, Ltd., cited in Dover Handbook, p. 447. " subrogation will only give the insurer rights upto twenty shillings in the Pound on what he has paid." per Lord Atkin.

9. Boag v. Standard Marine Insurance Co., (1937) 1 AU ER 714 (719).

10. Thames and Meriey Marine Insurance Co. v. British and Chilian Steamship Co., 1916 (I) KB 30.

11. See notes under section 4, proviso, English Act-clause 9.

12. Boag v. Standard Marine Insurance Co. Ltd., (1937) 1 All ER 714 CA.

13. (1937) 1 All ER 714 (720, 721).

14. At p. 722.

15. At p. 724.

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