Considering the findings made in Rand Mutual Assurance Co Ltd v PAF AZSCA 114 2008 (6) 311 SCA, (hereinafter referred to as the “Rand Mutual-matter”), why do so little practitioners use these principles?
In this matter the SCA dealt with the following facts:
Mr Young an employee of Harmony Gold was injured in a motor vehicle accident under circumstances which suggested that the RAF could also be liable. At the same time Mr Young was entitled to Workman’s Compensation benefits, ultimately paid by Rand Mutual Assurance Company. Rand Mutual having paid the compensation sought to recover this amount from the RAF and sued in its own name. The RAF argued that subrogation has not developed to such an extent in our law that it could justify an insurer to sue in its own name. The court conducted an enquiry into the history of the law of subrogation, the nature of the rule that a subrogated claim must be brought in the name of the insured, and a reflection of whether these rules require adaptation or amendment.
Subrogation is in brief the “substitution of one party for another as creditor based on an insurance policy”. The court explained this definition and warned that in the context of insurance, however, the word is used in a metaphorical sense. Subrogation as a doctrine of insurance law embraces a set of rules providing for the reimbursement of an insurer which has indemnified its insured under a contract of indemnity insurance. It is important to note that we have adopted the English law of subrogation into our legal system and, to this day, still apply it.
The doctrine grants an insurer two rights:
- the right to recourse
- the right to take charge of legal proceedings which are conducted in the name of the insured. In this respect it is important to note that the insurer merely acts as dominis litis or master of proceedings.
The following requirements must be met before subrogation will become applicable:
- A valid insurance contract
- The insurer must have indemnified the insured
- The insured’s loss must have been fully compensated by the insurer
- Rights must be susceptible to subrogation, as an insurer can only apply subrogation to the insured’s available rights
The court further discussed the matter of Ackerman v Loubser 1918 OPD 31, the court case pioneering subrogation into our legal system. Ackerman, indemnified by his insurance and directed by his insurer in terms of his insurance policy, claimed damages from Loubser to reimburse his insurer. Loubser raised the defence that since Ackerman was already indemnified by his insurer, Ackerman had no further claim against Loubser. The court rejected this argument and referred to the English law of subrogation and applied it to this matter. The court held that the insurer could institute legal action in its own name, which right to do so did not require any consent from the insured.
However in the Rand Mutual-matter the court held that it is easily overlooked that the Ackerman-matter was dealt with in terms of insurance law applicable only in the Orange Free State, which was primarily based on English law. The Orange Free State English law was repealed by Section 1 of the Pre-Union Statute Revision Act stating that the South African insurance law is henceforth governed by Roman-Dutch law. The court in the Rand Mutual-matter was subsequently not bound by English law.
However, the court in the Rand Mutual-matter was not satisfied that the current insurance legislation and application of the subrogation doctrine was sufficient and in line with the legal reform that occurred over the years. Subsequently the court conducted an investigation into the Continental and American application of Subrogation. It found that in the USA they protect the consumer from harassment and avoid confusion regarding the Plaintiff’s identity and accordingly allow the insurer to institute any subrogated action in its own name. The court did say that when applying the law strictly the action ought to be brought in the name of the insured, however this is not in line with current developments in terms of consumer laws.
The SCA acknowledged that no cession took place in the Rand Mutual-matter, but went on to say that it does not mean that the procedural rule that the insurer has to sue in the name of the insured is in accordance with our law. The court held further that the current affairs regarding subrogation is also not in accordance with our constitutional values. To require a party to litigate in the name of another appears to fly in the face of transparency. The court felt that these rules serves no public interest in modern times, as appears from the position in the USA. That it’s formalistic and creates anomalies. It enables the insurer to litigate in the name of the insured without taking any risks as far as litigation costs are concerned.
In conclusion the court found that this judgment does not specifically directs insurers to litigate in their own name or in the name of the insured. What it does hold is that the English rule in its stark form cannot be justified and if the wrongdoer will be prejudiced in a procedural sense, courts may permit the insurer to proceed in its own name.
This judgment has been criticised by Prof Van Niekerk from Unisa who opines that the fact that both parties in the Rand Mutual-matter were governed by statute, there is no real insurance contract through which subrogation could be born after indemnity to the insured. Neither the RAF nor Rand Mutual insurance involve private insurance contracts. In the absence of insurance contracts it is difficult to see how the doctrine of subrogation can be evoked. The rights and obligations of the parties are governed by statute and not contract. This is specifically relevant when having regard to the requirements for subrogation.