Subrogation, doctrine of

AIR 2000 SC 855

Para 11: In the case of Vasudeva Mudaliar (ibid) a learned Single Judge of the Madras High Court said:

"(4) A contract of motor insurance, like marine or accident insurance, is, in essence, one of indemnity. The underwriter, for consideration, guarantees the assured compensation against loss or risks, the limits of the guarantee against accident or loss or damage suffered, totally or partially, being subject to the maximum stipulated in the contract of insurance. Conversely, the rights of the assured are not to profit out of the bargain. It is implied in the very nature of the contract of indemnity that the indemnifier is entitled to re-coupe or minimise the damages he is obliged to pay the assured, by ways and means the assured himself could resort to, in order to reimburse himself against loss caused to him by third party negligence. Such a right of the insurer is, of course, conditional upon his having already indemnified the assured. In other words, arising out of the nature of a contract of indemnity, the insurer, when he has indemnified the assured, is subrogated to his rights and remedies against third parties who have occasioned the loss. This right of the insurer to subrogation or to get into the shoes of the assured as it were, need not necessarily flow from the terms of the motor insurance policy, but is inherent in and springs from the principles of indemnity. This is as a matter of law relating to indemnity, and the basis of the right is justice, equity and good conscience, namely, the indemnifier should be in a position to reduce the extent of his liability within limits.

(5) Where, therefore, an insurer is subrogated to the rights and remedies of the assured, the former is to be more or less in the same position as the assured in respect of third parties and his claims against them founded on tortious liability in cases of motor accidents. But it should be noted that the fact that an insurer is subrogated to the rights and remedies of the assured does not ipso jure enable him to sue third parties in his own name. It will only entitle the insurer to sue in the name of assured, it being an obligation of the assured to lend his name and assistance to such an action. By subrogation, the insurer gets no better rights or no different remedies than the assured himself. Subrogation and its effect are, therefore, not to be mixed up with those of a transfer or an assignment by the assured of his rights and remedies to the insurer. An assignment or a transfer implies something more than subrogation, and vests in the insurer the assured's interest, rights and remedies in respect of the subject-matter and substance of the insurance. In such a case, therefore, the insurer, by virtue of the transfer or assignment in his favour will be in a position to maintain a suit in his own name against third parties. ...."

Para 17: In its literal sense, subrogation is the substitution of one person for another. The doctrine of subrogation confers upon the insurer the right to receive the benefit of such rights and remedies as the assured has against third parties in regard to the loss to the extent that the insurer has indemnified the loss and made it good. The insurer is, therefore, entitled to exercised whatever rights the assured possesses to recover to that extent compensation for the loss, but it must do so in the name of the assured.

Para 18: The distinction between subrogation and assignment is explained in the standard textbook on Insurance Law by MacGillivray & Parkington (Seventh Edition).

"1131. Difference between subrogation and assignment. Both subrogation and assignment permit one party to enjoy the rights of another, but it is well-established that subrogation is not a species of assignment. Rights of subrogation vest by operation of law rather than as the product of express agreement. Whereas rights of subrogation can be enjoyed by the insurer as soon as payment is made, an assignment requires an agreement that the rights of the assured be assigned to the insurer. The insurer cannot require the assured to assign to him his rights against third parties as a condition of payment unless there is a special clause in the policy obliging the assured to do so. This distinction is of some importance, since in certain circumstances an insurer might prefer to take an assignment of an assured's rights rather than rely upon his rights of subrogation. If, for example, there was any prospect of the insured being able to recover more than his actual loss from a third party, an insurer, who had taken an assignment of the assured's rights, would be able to recover the extra money for himself whereas an insurer who was confined to rights of subrogation would have to allow the assured to retain the excess.

1132. Another distinction lies in the procedure of enforcing the rights acquired by virtue of the two doctrines. An insurer exercising rights of subrogation against third parties must do so in the name of the assured. An insurer who has taken a legal assignment of his assured's rights under statute should proceed in his own name...."

AIR 2004 SC 1206

Para 11: Having examined the issue from all possible angles and having referred to Sir Rashbehary Ghose on Law of Mortgage in India, Harris on Subrogation, Sheldon on Subrogation, Pomeroy on Equity Jurisprudence and a few English and Indian authorities available on the point what their Lordships concluded in Ganeshi Lal's case may be summed up as under:-

(1) When the co-debtor or co-mortgagor pays more than his share to the creditor for the purpose of redeeming a mortgage, the redeeming mortgagor is principal debtor to the extent of his share of the debt and a surety to the extent of the share in the debt of other co- mortgagors. The redeeming co-mortgagor being only a surety for the other co-mortgagors, his right is, strictly speaking, a right of reimbursement or contribution.

(2) The substitution of the redeeming co-mortgagor in place of the mortgagee does not precisely place the new creditor (i.e. the redeeming co- mortgagor) in place of the original mortgagee for all purposes. If, therefore, one of several mortgagors satisfies the entire mortgage debt, though upon redemption he is subrogated to the rights and remedies of the creditor, the principle has to be so administered as to attain the ends of substantial justice regardless of form in other words, the fictitious cession in favour of the person who effects the redemption, operates only to the extent to which it is necessary to apply it for his indemnity and protection. (Digambar Das Vs. Harendra Narayan Pandey, 14 C.W.N. 617).

(3) The doctrine of subrogation must be applied along with other rules of equity so that the person who discharges the mortgage is amply protected and at the same time there is no injustice done to the other joint-debtors. He who seeks equity must do equity.

(4) There is a distinction between a third party who claims subrogation and a co-mortgagor who claims the right. The co-mortgagors stand in a fiduciary relationship qua each other. The redeeming co mortgagor can only claim the price which he has actually paid together with incidental expenses. Strictly speaking, therefore, when one of several mortgagors redeems a mortgage, he is entitled to be treated as an assignee on the security which he may enforce in the usual way for the purpose of reimbursing himself. The subrogation to the rights of the mortgagee by the redeeming co-mortgagor is confined only to the extent necessary for his own equitable protection. The redeeming co-mortgagor can, just as the surety would, ask to indemnify for his loss and he can invoke the doctrine of subrogation as an aid to right of contribution.

Para 20: A subrogation rests upon the doctrine of equity and the principles of natural justice and not on the privity of contract. One of these principles is that a person, paying money which another is bound by law to pay, is entitled to be reimbursed by the other. This principle is enacted in Section 69 of the Contract Act, 1872. Another principle is found in equity: "he who seeks equity must do equity".

Sandeep Jalan

Advocate

https://vakeelkanumber.com/