In this post, we take a look at an insurer’s right to subrogation – the mechanism that allows them to step into the shoes of the insured – and how, in particular circumstances, that right can be restricted.

We look first at how subrogation applies where there are joint or co-insureds, depending on the specifics of that cover and then consider the interaction between a contractual prohibition on assignment and the insurer’s right to subrogation.

Joint and Co-Insureds

In cases where there is joint insurance cover over a common interest, an insurer is prevented from pursuing a subrogated claim against one insured for a loss sustained by a co-insured. It is not difficult to see the barrier to an insurer pursuing a subrogated claim – if they are successful, they will have to indemnify the defendant as well.

This restriction on an insurer’s right to subrogation is applied practically and rather narrowly. If the two parties are co-insured under the same policy, but each have a different scope of cover, then where the loss is something which is covered for one party but not the other, a subrogated claim can still be brought between them. The onus is on the insurer to establish that the defendant to the proposed subrogated claim is not covered for the loss.

This requires close analysis of the detail in the scope of cover for each insured under an insurance policy. It may be common ground that the parties are each insured under the policy, but the crucial question is the extent of that cover in relation to the specific loss.

It is the intention of the parties, with respect to the scope of the cover and position on subrogation, that will be the court’s primary consideration when determining whether or not a right of subrogation exists. If the position is not clear from the policy, then the court will look at all contractual documentation in the round and give weight to factors such as the relationship between the parties and any evidence that the parties had intended to prevent subrogated claims. If the evidence is that the intention of the co-insured parties in obtaining insurance for certain losses was to displace claims based on civil liabilities between them, then a term preventing subrogated claims against a co-insured will be implied into the policy.

Contractual Prohibition on Assignment

It is not uncommon for an agreement governed by English law to include, as part of the boilerplate clauses, a non-assignment clause, preventing any assignment of rights to a third party (such as an insurer). The interaction between a non-assignment clause and a subrogation clause, generally found in separate contracts, is an important one but perhaps too often overlooked.

The question that arises is, is subrogation a form of assignment of a right? If so, is a subrogated claim prohibited under such a non-assignment clause?

Under English law, if the insured assigns rights to a claim contractually, for example, by way of security, then the insurer can bring the claim in its own name. On the other hand, a subrogated claim is brought by the insurer stepping into the shoes of the insured and brought in the name of the insured. It should be noted that this position may differ in other jurisdictions, where the English law concept of subrogation is not available.

It is important to know whether the right to subrogation has arisen as a matter of law, or through another channel, such as through contract. If the right to bring a claim was transferred to the insurer by the party contractually, then it would appear to fall under the non-assignment clause. The prohibition on assignment in a contractual clause typically explicitly refers to the assignment by one party or another.

However, if the right to subrogation arises by operation of law in the jurisdiction, then it would not be prevented by the non-assignment clause.

The wording of the contract between the parties and specifically the non-assignment clause will be critical. When looking at the contract between the parties as a whole, if there is provision for each party to obtain their own insurance, then it appears likely that the court will not find that a non-assignment clause was intended to prevent subrogated claims. Rather than relying on boilerplate language, it would be wise to make sure that any non-assignment provisions are drafted with particular clarity and considered in the context of any relevant insurance cover.