PRACTICAL APPLICATION OF THE SUBROGATION PRINCIPLE

The principle of subrogation emanates from English law and is recognised in South African law. Subrogation as a doctrine of insurance law embraces a set of rules providing for the reimbursement of an insurer which has indemnified it’s insured under a contract of indemnity insurance[1]. This is in contrast to assignment or ceding of rights. Put simply it means that the insurer steps in the shoes of the insured to claim for loss sustained by the insured against third parties.

At the centre of this doctrine is the case of Nkosi v Mbatha 2010 JDR 0839(KZP), the Plaintiff instituted action against a third party for damages sustained to the Plaintiff’s vehicle as a result of a motor vehicle collision. The third-party argued that the Plaintiff did not have legal standing as he had been indemnified by the insurer and therefore suffered no loss. The trial court found that the Plaintiff had failed to disclose that the claim was a subrogated one which required clear proof and had to be specifically pleaded.

In the case of Des O Smith v A K Banjo (AR290/10) 2010 ZAKZPHC the court confirmed the findings in the trial court of Nkosi v Mbatha and found that subrogation must be clearly proved and pleaded. This decision was overruled in the appeal court in the case of Nkosi v Mbatha, the court found that from a practical perspective the insurer’s involvement is irrelevant and therefore it is not necessary to plead such involvement. It is an established practise that in subrogated claims the insurer takes the place of the insured and parties have the same rights and duties as they would have had, had the matter not been a subrogated claim. On the facts, the court further found that the Plaintiff’s ownership of the vehicle establishes a direct interest in the diminution of the patrimonial value of the vehicle and this being an Aquilian action, ownership is sufficient to establish locus standi and therefore the Third Party’s in limine point that the Plaintiff lacks locus standi was dismissed with costs.

In Rand Mutual Assurance Company v Road Accident Fund 2008 (6) SA 511 SCA ,the court  found that the only time where subrogation has to be proved or pleaded is where the insurer proceeds against a third party in its own name under the doctrine of subrogation.

PRACTICAL APPLICATION

As a general rule the insurer is only entitled to exercise the right of subrogation once the insured has been indemnified of any loss and on payment of indemnification, subrogation applies without any formalities observed, meaning that an insurer intending to pursue a claim against a third party need not prove or plead subrogation, exception noted on the Rand Mutual case above.

In some instances, the insurer can ask the insured to sign a letter of subrogation and an insurer is not allowed to demand of the insured anything beyond the insured’s obligation under the contract of insurance.

Thirdly, should the insured refuse to permit the insurer to use his name, the insurer can approach the courts for an order to compel the insured. Lastly, the insurer is obliged to recover all loss incurred by the insured inclusive of all costs.

In conclusion, subrogation is a recognised doctrine in South African law under indemnity insurance contracts and involvement of the insurer in a lawsuit is practically irrelevant and therefore it is not necessary to plead such involvement as it has already been established that in subrogation claims the insurer takes the place of the insured.

[1] Nkosi v Mbatha 2010 JDR 0839(KZP) at para 11.