Subrogation
| Author | Denis Boivin |
| Pages | 280-307 |
280
A. INTRODUCTION
An insured may have more than one avenue of redress once an insured
risk materializes. If the losses were caused by the negligence of some-
one else, the insured may have a cause of action against this person for
damages. The same is true if the losses were the result of someone else’s
breach of contract. On the one hand, the principle of indemnification
could be jeopardized if an insured was allowed to supplement an insur-
ance policy with legal remedies that covered the same incident. On the
other hand, the incentives of tort law and contract law could be lost if
an insured was forced to rely exclusively on first-party insurance for
compensation.
The right of subrogation addresses both of these concerns. Subro-
gation arises when the insured has an enforceable right against some-
one other than his or her insurer — a right that would allow the
insured to recover the losses caused by the peril, in part or in their
entirety. Subrogation allows the insurer to enforce this right in the
name of the insured and to withhold from the resulting award the
equivalent of any indemnity paid under the insurance contract. In
addition, subrogation allows the insurer to seek reimbursement from
the insured or to make a deduction from his or her indemnity if the
insured has already enforced the right of action and received compen-
sation from the third party. However, the insurer is not discharged from
its responsibilities because of subrogation. On the contrary, first-party
SUBROGATION
chapter 11
insurance remains the principal avenue of redress for the insured.
Insurance is quick, comprehensive, and usually applies irrespective of
fault. Subrogation merely allows the insurer to share its legal burden
with other debtors. Through subrogation, everyone is held account-
able: the person who is responsible for the loss, the person who prom-
ised to indemnify, and the person who suffered the damage.
B. BASIS FOR SUBROGATION
Two famous English cases illustrate the basis of subrogation. Rayner v.
Preston1and Castellain v. Preston2stem from the same factual back-
ground. The defendant, Preston, sold a piece of real estate for £3,100
to Rayner. The contract of sale specified that the purchaser should pay
the full amount on closing, irrespective of the condition of the house
that was located on the land. Before the date of closing, a fire caused
damage to this building. Preston made a claim under his property
insurance and received the sum of £330 for his losses. In due course,
the purchaser, Rayner, paid the promised amount and then discovered
the damage caused to the house.
In Rayner, the purchaser was suing the vendor in order to recover
the indemnity paid to the vendor by the insurance company. Note that
this is not a situation where the vendor insured both his interests and
the interests of the purchaser.3Preston never intended to insure beyond
his own personal interests. Having said this, the court shut the door in
the plaintiff’s face. According to the court, an insurance contract is a
personal contract between the insured and the insurer. The object of
the contract is the payment of a sum of money, not the land and build-
ing themselves. Hence, the contract does not follow the insured object
into the hands of subsequent owners. As the court put it: “The contract
of insurance does not run with the land.”4Rather, the contract stays
with the insured. Stated somewhat differently, an insurance contract
does not provide a guarantee relating to the insured object; it guarantees
a specific individual’s insurable interest in an object. Thus, in the absence
Subrogation 281
3 The vendor could have done this under certain conditions: see Keefer and the
Quebec Bank v. The Pheonix Company of Hartford (1901), 31 S.C.R. 144. See also
Chapter 4.
4Rayner, above note 1 at 11, per Lord Brett.
To continue reading
Request your trial