Introduction To Subrogation In Insurance

Brief Introduction to Doctrine of Subrogation in Insurance Law The doctrine of subrogation is one of the most recognized doctrines in common law.1 The doctrine was developed to prevent unjust enrichment.2 For instance, in Assignee v. Mahoney,3 the cashier of a bank allowed the defendant to overdraw from her account. When the cashier discovered the shortage, he gave his note for the amount. He subsequently became bankrupt and the bank established its claim against him. The assignee, then, sued the defendant for the amount. It was held in the case that the assignee was subrogated in place of the bank and could sue the defendant for the said amount.4 The doctrine is of subrogation is only applicable to a person who comes with clean hands.5Subrogation must be permitted in all cases where it can prevent unjust enrichment and the plaintiff is entitled to equitable relief.6 The doctrine of subrogation has been defined in many ways. A dictionary definition of the term would be— “In Law the act or operation of law in vesting a person who has satisfied, or is ready to satisfy, a claim which ought to be borne by another with the right to hold and enforce the claim against such other for his own indemnification."7 Black’s Law Dictionary defines the doctrine as— “The substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.”8 A rather pithy exposition of the doctrine can be found in Justice Miller’s opinion in the Supreme

ML Marasinghe, ‘An Historical Introduction to the Doctrine of Subrogation: The Early History of the Doctrine I’, 10 Val. U. L. Rev. 45 (1975). 2 See 26 Harv. L. Rev. 364, 382 (1912-1913). 3 Assignee v. Mahoney, 150 S.W. 503 (Ky.). 4 Ibid. 5 See Johnson v. Moore, 33 Kan. 90, 5 Pac. 506. 1

6

In Re McBride, 19 N.B.R. 452. The Century Dictionary. 8 The Century Dictionary. 7

Court of the United States Case of Aetna L. Ins. Co. v. Middleport9, where he wrote— “The doctrine of subrogation is derived from the civil law, and ‘It is said to be a legal fiction, by force of which an obligation extinguished by a payment made by a third person is treated as still subsisting for the benefit of this third person, so that by means of it one creditor is substituted to the rights, remedies, and securities of another….It takes place for the benefit of a person who, being himself a creditor, pays another creditor whose debt is preferred to his by reason of privileges or mortgages, being obliged to make the payment, either as standing in the situation of a surety, or that he may remove a prior incumbrance from the property on which he relies to secure his payment. Subrogation, as a matter of right, independently of agreement, takes place only for the benefit of insures; or of one who, being himself a creditor, has satisfied the lien of a prior creditor; or for the benefit of a purchaser who has extinguished an incumbrance upon the estate which he has purchased; or of a co-obligor or surety who has paid the debt which ought, in whole or in part, to have been met by another.’ Sheldon Subrogation, pp. 2,3.” Another very important and controversial explanation of the doctrine can be found in Brett L.J.’s opinion in Castellain v. Preston10— “…that as between the underwriter the assured the underwriter is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise of acquiring of which right or condition the loss against which the assured is insured, can be, or has been diminished. That seems to me put this doctrine of subrogation in the largest form possible”

9

Aetna L. Ins. Co. v. Middleport, 124 U.S. 534, 538-9.

10

Castellain v. Preston, (1) 8 Q.B.D. 613 (1883).

It must be noted that even though the cases were decided in the context of an insurance contract, the doctrine of subrogation was not restricted in the context of insurance contracts. It has historically been invoked in various situations, especially in the context of a contract of guarantee.11 Authors have distinguished the doctrine of subrogation as being applicable in three distinct situations— legal subrogation, conventional subrogation and statutory subrogation. this project, we shall try to understand the concept in light of insurance law”.

11

12

Ibid. James M. Mullen, ‘The Equitable Doctrine of Subrogation’, 3 Md. L. Rev. 202 (1939).

12

In