ABSTRACT
Definition A person who has taken out a marine insurance policy may also have a claim against a third party if loss has been caused by him. In such a case the assured will have two remedies, one from the insurer and one from the third party. If the assured makes his first claim against the third party the latter cannot argue that the assured first must claim from the insurer. Moreover, in assessing damages recoverable from the third party the proceeds of insurance are to be disregarded.1 If the assured first directs his claim to the insurer, the insurer cannot refuse to indemnify the assured since the assured may have distinct rights against some other person.2 In such a case the assured may obtain a double recovery. He may first recover his loss from the insurer whose payment will not discharge the third party from his liability to the assured. If otherwise were permitted, that is, if the insurer’s payment discharged the third party from his liability, the third party would be permitted to take advantage of an insurance contract under which he did not pay any premium. However, a further issue which has to be emphasised is that the principle which governs the compensation of the assured’s loss states that a marine insurance contract is a contract of indemnity that the assured, under an insurance contract, is entitled to receive the amount representing his loss but no more than that.3 Thus, it appears that the principle of indemnity does not allow the assured to obtain a double recovery.4 Therefore, equity established that upon payment of the policy amount to the assured, the insurer subrogates into the assured’s rights against the third party.5 Subrogation places the insurer in the position of the assured in this respect.6 The double recovery is then prevented and the third party is not relieved from his wrongdoing by the insurer’s payment. Subrogation is set out by section 79 of the MIA 1906 in the following words:
It has been submitted that section 79 of MIA 1906 is not a model of clarity7 but two issues should be noted here. First, subsection 1 regulates ‘abandonment’, which is a different principle
to subrogation. Abandonment is fully analysed in Chapter 9, but will briefly be discussed in this chapter in relation to distinguishing abandonment from subrogation. Second, even though it appears in the Marine Insurance Act 1906, section 79 has been said to express more general principles.8
