Subrogation and Recoupment

MARINE INSURANCE: LAW AND PRACTICE - 2nd Edition, 2012
CHAPTER 27 SUBROGATION AND RECOUPMENT
Chapter CHAPTER 27
SUBROGATION AND RECOUPMENT
I INTRODUCTION
The doctrine of subrogation
27.1 The underlying purpose of a contract of indemnity insurance is the provision of an agreed indemnity to an assured for a loss.
The doctrine of subrogation is often used to describe a series of related legal principles which can be best understood as having two
major functions. The first is to prevent the assured from being over-indemnified under the contract of insurance for the loss insured
against, at the expense of the insurer. The second is to facilitate recoupment of the insurer for the indemnity paid to the
assuredoften, though not invariably, at the expense of the party responsible for causing the loss.
27.2 Behind the doctrine of subrogation, so understood, are two fundamental principles. The first is that where an assured has a
right of action against a third party in respect of the loss insured against, the third party generally cannot avoid or reduce its liability
by relying on the fact that the assured has been (or is entitled to be) indemnified by his insurer. The second principle is that,
conversely, an insurer cannot generally avoid or reduce his liability under the contract of insurance by relying on the fact that the
assured has a right of action against a third party in respect of the loss insured against by which the assured might diminish his loss.
27.3 The danger that inevitably arises from those two fundamental principles is that the assured may be over-indemnified for the
loss insured againstby an accumulation of recoveries from the insurer and the third party. He would be paid a sum by way of
indemnity for a loss which in the event is diminished or extinguished by some other means. The law both avoids that consequence
and facilitates recoupment of the insurer at the expense of the third party against whom the assured has a right of action, by a
combination of several principles.
27.4 First, where the loss insured against is diminished before the assured obtains payment from his insurer, the insurers liability
under the contract of insurance for the loss is generally correspondingly reduced.
27.5 Second, ifwhilst the assureds loss has previously been diminishedthe insurer nevertheless mistakenly overpays the
assured, the insurer has a claim to recoupment against his assured to recover the amount of the overpayment.
27.6 Third, iffollowing indemnification by his insurerthe assured obtains a recovery which reduces the losses for which the
indemnity was paid, the insurer again has a claim to recoupment against his assured to recover the amount of the overpayment.
27.7 Fourth, iffollowing indemnification by his insurerthe assured has a right against a third party, the exercise of which will
diminish the losses for which the indemnity was paid, the insurer is entitled to be subrogated to the assureds right(s) of action.
That right of subrogation involves the right to insist that the assured allow the insurer to exercise the right(s) held by the assured
against third parties for the insurers benefit, in the limited sense of enabling the insurer to recoup himself for the sums paid by way
of indemnity to the assured.
27.8 Fifth, the recoupment of the insurer is further facilitated by the recognition that the insurer has an equitable proprietary right,
in the form of an equitable lien, over recoveries obtained by his assured, and possibly over the assureds right of action against a third
party whereby such a recovery can be obtained.
The insurers right of subrogation and the insurers claim to recoupment
27.9 The legal consequences just described flow from the character of a contract of insurance as a contract of indemnityeven in
the absence of express provision. It remains possible for a contract of insurance to exclude or modify those basic principles by
contrary provision. The primary focus of this chapter is, however, on two particular aspects of the laws generaldefaultprinciples.
Accounts of the doctrine of subrogation in insurance law have not always clearly distinguished and separated them; but clarity of
understanding and exposition requires that they should be.1
27.10 The first, which can be properly labelled the insurers right of subrogation, denotes the entitlement of an insurer, on
indemnifying his assured under the contract of insurance, to insist that subsisting rights held by the assured against third parties are
exercised for the insurers benefit. For the insurers benefit here means for the limited purpose of enabling the insurer to recoup
himself for the sums paid by way of indemnity to his assured. The principles governing the insurers right of subrogation are
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described in Part II of this chapter.

27.11 The second, which can be neutrally labelled the insurers personal claim to recoupment, denotes the entitlement of an
insurer to recover sums which he has overpaid by way of indemnity to his assured. Properly understood, the principles governing the
insurers claim to recoupment are of general application. They determine the extent of the insurers entitlement against his assured
where the insurer has mistakenly overpaid the assured after the loss insured against has been diminished by some other means. And
they determine the extent of the insurers entitlement against his assured in respect of recoveries obtained after the assured has been
indemnified by the insurer, whether those recoveries are obtained following the exercise of a right of action vested in the assured by
the assured himself or by the insurer pursuant to his right of subrogation, or are obtained by the assured independently of any right of
action vested in him. In some of its manifestations, at least, that claim to recoupment is secured by an equitable lien over recoveries
F.D. Rose
obtained by the assured from third parties; it may also be secured by an equitable lien even over the rights of action held by the
assured against the third parties. The principles governing the insurers personal claim to recoupment, and the equitable security
interest which secures that claim, are described in Parts III and IV of this chapter.
The general law and the Marine Insurance Act 1906
27.12 The doctrine of subrogation is statutorily recognised in the context of marine insurance by the Marine Insurance Act 1906.
Sections 79(1) and 79(2) deal separately with cases of total loss and partial loss. They provide that:
(1) Where the insurer pays for a total loss, either of the whole or in the case of goods of any apportionable part, of the
subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain of
the subject-matter so paid for, and he is thereby subrogated to all rights and remedies of the assured in and in respect of
that subject-matter as from the time of the casualty causing the loss.
(2) Subject to the foregoing provisions, where an insurer pays for a partial loss, he acquires no title to the subject-matter
insured, or such part of it as may remain, but he is thereupon subrogated to all rights and remedies of the assured in and in
respect of the subject-matter insured as from the time of the casualty causing the loss, in so far as the assured has been
indemnified, according to this Act, by such payment for the loss.
27.13 It should be apparent that those short subsections fall far short of providing a clear and exhaustive statement of the doctrine
of subrogation in the context of contracts of marine insurance. Equallyand consistently with pre-1906 authoritiesthey draw no
clear distinction between the two key aspects of that doctrine considered in this chapter. They are best regarded as providing statutory
recognition that the doctrine of subrogation, recognised by the general law, applies to marine insurance contracts; the detail of the
law must be found in common law authorities before and after 1906. That is not to say that the doctrine of subrogation always
applies identically to marine insurance contracts, however. On some important points of detail marine insurance principles appear to
diverge from those generally applying.
II THE INSURERS RIGHT OF SUBROGATION
Introduction
27.14 The insurers right of subrogation is the entitlement of an insurer, on indemnifying his assured under the contract of
insurance, to insist that subsisting rights held by the assured against third parties are exercised for the insurers benefitfor the
limited purpose of enabling the insurer to recoup himself for the sums paid by way of indemnity to his assured.
The preconditions of the insurers right of subrogation A contract of indemnity insurance
27.15 A marine insurer is only subrogated to the relevant rights of his assured if he pays for the loss pursuant to a valid contract of
indemnity insurance. The requirement for a valid contract of indemnity insurance is consistent with the general law, and with the
underlying rationale of an insurers right of subrogation. It is also apparent from John Edwards & Co v Motor Union Insurance Co
Ltd,2 where it was held that a marine insurer has no right to subrogation if he pays under a ppi policy which is wholly avoided under
statute.3 The premise of that decision was that an insurers right does not just require payment for a loss. It depends on payment
pursuant to an underlying, valid contract of indemnity insurance.
27.16 Where there is an underlying valid contract of indemnity insurance, however, an insurer who pays for a loss is not denied
the rights of subrogation that would ordinarily arise, merely because the payment is made for a loss which is in fact outside the
policy. In King v Victoria Insurance Co Ltd,4 where the underlying contract of insurance was valid, it was said that insurers would be
entitled to exercise their rights of subrogation by virtue of a payment honestly made by [them] in consequence of a policy granted by
them and in satisfaction of [the insured]. It was not open to the third party, against whom the insurers subsequently brought an
action, to argue that the insurers had no rights of subrogation, because the payment was a voluntary payment to a stranger, which
did not carry the normal consequences of a payment to an assured under a policy.
The insurer must pay for the loss
27.17 The Marine Insurance Act 1906, sections 79(1) and 79(2), expressly provide that an insurer is subrogated to relevant rights
of his assured where he pays for a total or partial loss.
The extent of the payment required
27.18 Under the general law, an insurer cannot exercise any right of subrogation at least until he fully performs his obligation to
indemnify the assured under the policy.5 For this purpose, fully performs his obligations may require the insurer to satisfy all claims
arising out of the same incident, for which a single premium is paid under a single policy. It is insufficient for the insurer merely to
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satisfy the particular claim in respect of which he asserts a right to be subrogated.6

27.19 Doubt has sometimes been expressed about whether an insurers right of subrogation only arises once the assured has been
fully indemnified for his actual losses, where that loss exceeds the sums payable and paid by the insurer under the policy.7 The
preferable view may be that an insurers right of subrogation becomes exercisable once the insurer fully indemnifies the assured as
required by the policy; but that, at least under non-marine policies, the manner in which the right is exercised may be affected by
whether the assured has obtained a full indemnity against his actual loss. A non-marine authority suggests that, if the policy provides
only a partial indemnity, and the assured wishes to bring proceedings to enforce his rights against a third party, the assured may be
entitled to remain in control of the proceedingsto be dominus litisuntil he receives a full indemnity against his actual loss.8
F.D. Rose
Following Napier v Hunter,9 however, that probably cannot apply to uninsured losses which fall below a policy excess.
27.20 Even if such a qualification does generally exist, it is unclear how far it can apply to marine insurance contracts. First, where
an assured is fully insured under a valued policy, the agreed value is conclusive between the parties to the policy as to the value of the
subject matter, in the absence of fraud.10 The parties are estopped from disputing that the value of the thing insured is as agreed.11 The
assured should similarly be estopped from denying that the amount paid to him under the policy, in accordance with the valuation,
has fully indemnified him for his losses. On that assumption, whatever might otherwise be the case, the insurer would be entitled to
control any proceedings even if the assureds actual loss exceeds the agreed measure of the indemnity.12
27.21 Second, where an assured is underinsured under a valued policy or an unvalued policy, the assured will not be estopped
from denying that he has been fully indemnified against either the agreed measure of his loss (if the policy is valued) or his actual
loss (if the policy is unvalued), by payment of the lesser insured sum. Nevertheless, the Marine Insurance Act 1906, section 81,
deems an assured to be his own insurer in respect of the uninsured balance under a valued policy or an unvalued policy. It has been
suggested that the insurer may be able to argue that payment under the policy, together with the assureds own responsibilities as
deemed self-insurer, provide a full indemnity against the assureds actual lossat least for the purpose of determining whether the
insurer acquires and can exercise rights of subrogation.13
27.22 Assuming that an assured under a marine insurance policy is sometimes entitled to remain dominus litis, despite full
indemnification by the insurer under the policy, the significance of that qualification must not be overestimated.14 An insurer under a
policy which in terms provides only a partial indemnity can take steps to protect himself. First, even in the absence of express
contractual provision, the insurer may obtain an injunction, restraining proceedings by the assured, unless the assured undertakes to
include the insured loss in his claim against the third party; the assureds freedom of action in those proceedings is also limited by his
general duty not to prejudice the insurers right of subrogation.15 Second, express contractual provision may afford the insurer a right
to control the proceedingseven where such a right would not otherwise arise. Thus, in particular, the International Hull Clauses,
clause 49.1.4, imposes a duty on an assured to take reasonable steps, inter alia, to cooperate with the Leading Underwriter(s) in the
taking of such steps as may be reasonably required to pursue any claims against third parties.16 That duty applies whether or not the
insurers have paid a claim or agreed to pay a claim or potential claim under the policy. Where such a duty is expressly incorporated
into the contract of insurance, it would appear to displace any entitlement that an assured might otherwise retain to control the
conduct of proceedings to enforce his rights of action against third parties, whether or not the insurers have indemnified him under
the policy.
The nature of the payment
27.23 Although the Marine Insurance Act 1906, section 79, provides that an insurer is entitled to be subrogated on payment for a
loss, those words should not preclude rights of subrogation where the insurer provides some other agreed form of indemnity for an
assureds loss.17
The timing of the payment
27.24 An insurer should ensure that he makes the required payment to the assured before he commences any action against a third
party. An action commenced by the insurer, at least if brought without the assureds initial authority or perhaps later ratification,18
will not be regarded as effectively commenced.19 It appears that that defect cannot be cured simply by the insurer subsequently fully
indemnifying the assured.20
The extent of the insurers right of subrogation A right of subrogation until the insurer has been fully recouped for
sums overpaid
27.25 Consistently with its underlying rationale, an insurers right of subrogation must end once the insurer has fully recouped the
sums overpaid to the assured by way of indemnity. Put differently, an insurers right, vis--vis his assured, to insist that the assureds
rights against third parties are exercised for his benefit should endure only as long as the insurer would have a claim to recoupment in
respect of some or all of any recovery obtained by the assured from the third party. That limitation applies to cases of total and partial
loss alike. The same point may sometimes be made by statements that an insurer would be subrogated to the assureds rights to the
extent of the indemnity paid.21
The rights of the assured to which an insurer is entitled to be subrogated Only rights held by the assured
27.26 An insurers right of subrogation, narrowly conceived, can only arise in respect of rights which the assured holds against
third parties. The loss insured against might occur in circumstances in which the assured acquires no right of action against a third
partyfor example, because the assured has effectively excluded any liability on the part of the third party for the loss by a prior
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contract with the third party.22 Similarly, an insurers right of subrogation, narrowly conceived, can only be exercisable in respect of
subsisting rights of the assured against third parties. Thus an insurers right of subrogation is effectively limited if, for example, a
right of action which has accrued to the assured against a third party in respect of the loss insured against has been extinguished or
become unenforceable by a time bar, or if, for example, the right of action has been effectively released by the assured by an effective
settlement with the third party.23
27.27 An important caveat is nevertheless required. Whilst the fact that an assured has no (subsisting) right of action against a
third party in respect of the loss insured against prevents the insurer from exercising his right of subrogation in respect of that right,
that does not mean that the insurer has no claim whatsoever.24 If the assured has previously obtained a recovery from a third party
F.D. Rose
which diminishes the insured against loss, pursuant to a right of action which no longer exists, the insurer has a claim to recoupment
for the amount of the indemnity overpaid to the assured.25 Furthermore, an insurer may be entitled to relief against the assured where
the assured has been responsible for prejudicing the insurers right of subrogation, by his action or perhaps inaction.26
Only rights of the assured, the exercise of which will diminish the loss insured against
27.28 An insurer is not entitled to be subrogated to every subsisting right held by the assured against third parties. The Marine
Insurance Act 1906, section 79, expressly provides that an insurer is subrogated to all rights and remedies of the [assured] in and in
respect of [the insured] subject-matter as from the time of the casualty causing the loss.27 The provision should be given a purposive
interpretation, consistently with leading pre-1906 judicial statements,28 with the rationale of the insurers right of subrogation, and
with the extent and rationale of the insurers associated claim to recoupment. A marine insurer should be entitled to be subrogated to
rights of the assured, regardless of their legal quality, which if exercised will be regarded as diminishing the losses against which the
assured has been indemnified by the insurer.29
27.29 The test cannot be purely factual. It contains a normative component which it is impossible to ignore: should the exercise of
the right in question be considered to diminish the loss insured against? An insurers right of subrogation is by no means limited to
rights of action against third parties who wrongfully caused the loss insured against.30 Many cases ordinarily cited in this context
actually concern whether an insurer can treat a recovery previously obtained by an assured as reducing his liability to the assured for
the loss insured against;31 or whether, having paid the assured, the insurer has a claim to recoupment against the assured to the extent
that the recovery reduces the loss for which the indemnity was paid.32 Such questions should, however, be answered consistently by
the law.33
The exercise of the insurers right of subrogation The insurers entitlement to bring or continue proceedings in the
name of the assured
27.30 The essence of the insurers right of subrogation is that, on indemnifying his assured, the insurer is entitled to insist that
certain rights, held by the assured against third parties, are exercised for his own benefitfor the purpose of enabling the insurer to
recoup the amount of the indemnity paid to the assured. In practice, that has the consequence that the insurer is entitled to bring
proceedings, or to continue existing proceedings, in the name of the assured. It is fundamental that an insurer is not entitled by
subrogation to bring an action in his own name; the cause of action against the third party remains the assureds. To that extent, an
insurer who is subrogated to an assureds rights is in a different position from an insurer who has taken a legal assignment.34
27.31 A further corollary of the fact that the insurers right of subrogation gives the insurer no new, independent cause of action is
that an insurer cannot effectively commence any action against a third party before he fully indemnifies the assured under the
contract, without either the assureds initial authority or perhaps his subsequent ratification;35 such an action is a nullity.36 The defect
cannot be cured simply by the insurer subsequently fully indemnifying the assured.37
27.32 If the assured refuses to lend his name to proceedings, after being fully indemnified by the insurer under the policy, the
insurer has two major options. He might bring proceedings seeking an order compelling the assured to lend his name. However, the
modern and less circuitous course would be for the insurer to bring an action against the third party and the assured. In that action, he
would claim an order that the assured authorise him to proceed against the third party in the assureds name, and would seek to
proceedonce so authorisedagainst the third party.38
The assureds duties in relation to his rights of action Generally
27.33 In the absence of express provision, it may be that an assured has no duty to bring or continue proceedings, nor any more
limited duty to ensure that his causes of action, to which the insurer is or may be subrogated, are prejudiced by his inactionfor
example, by failing to ensure that any cause of action is not prejudiced by a time bar.39
Special provisionexpress duties relating to proceedings in the standard forms
27.34 A duty may of course be expressly imposed on an assured by the contract of insurance, requiring the assured to take active
steps to preserve his causes of action against third parties. Marine insurance standard forms contain important examples of such a
duty.
27.35 In the case of cargo insurance, the Institute Cargo Clauses impose a duty on the assured, his employees and agents to
ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised.40 The insurer has a
corresponding obligation to reimburse the assured for the sums properly and reasonably incurred by the assured in performance of
that duty.41 It appears that breach of that term does not entitle the insurer to repudiate his duties, but merely renders the assured liable
to pay damages to the insurer, which the insurer may set off against his liability to the assured under the policy.42 The measure of
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damages for breach of such a term should probably represent the value of the insurers lost opportunity to obtain recoupment of the
amounts paid by way of indemnity to the assured.43
27.36 In the case of hulls insurance, the International Hull Clauses, clause 49, now makes very detailed provision for duties on the
part of the assured with regard to potential recoveries.44 Whether or not the insurer has paid a claim or agreed to pay a claim or
potential claim under the policy, the assured has duties to take reasonable steps to:
49.1.1 assess as soon as possible whether there are any prospects of a recovery from third parties in respect of matters
giving rise to a claim or to a potential claim under this insurance
F.D. Rose
49.1.2 protect any claims against such third parties if necessary by the commencement of proceedings and the taking of
appropriate steps to obtain security for the claim from third parties
49.1.3 keep the Leading Underwriter(s) and the appointed average adjuster (if any) advised of the recovery prospects and any
action taken against third parties
49.1.4 cooperate with the Leading Underwriter(s) in the taking of such steps as may be reasonably required to pursue any
claims against third parties.
That clause makes further express provision for the insurer to reimburse the reasonable costs incurred by the assured pursuant to
those duties in the same proportion as the insured losses bear to the total of the insured and uninsured losses.45 In addition, further
express provision is made for the reimbursement of reasonable costs incurred by the assured pursuant to his duty under clause
49.1.2 to protect any claims against third parties in respect of matters giving rise to a claim or to a potential claim under the policy,
even though no claim is recoverable under the policy, if the assured has obtained the insurers written agreement to the incurring of
such costs before they are incurred.46
The assureds rights in relation to his rights of action Generally
27.37 Non-marine authorities suggest that, in the absence of contrary provision, an assured remains entitled to bring proceedings
to enforce any right of action he might have against third parties, notwithstanding the insurers right of subrogation; and he can
remain dominus litis in those proceedings, at least if the policy has afforded him only a partial indemnity.47 It is suggested, at least as
regards non-marine policies, that an insurer cannot obtain an order restraining the assured from bringing such proceedings, before
payment of what is due under the policy,48 or after.49 Thus it has been suggested that, even if the insurer requests the assured not to
sue, and disclaims any desire to receive anything that the assured may recover, the assured is entitled to proceed.50
27.38 The assureds right to bring proceedings is nevertheless subject to important limitations. First, if the assured does recover in
such proceedings, in respect of a loss against which he has been indemnified by the insurer, the insurer has a claim to recoupment
against the assured for the amount of the indemnity overpaid, secured by an equitable lien over the recoveries.51 Furthermore, even in
the absence of express provision, the assured has a duty not to prejudice the insurers right of subrogation, at least by active steps.52
An insurer may be able to obtain an injunction, restraining proceedings by the assured subject to an undertaking being given by the
assured to sue for both the insured and uninsured losses.53 And, if the insurers chances of recoupment are prejudiced by the assureds
conduct in that litigation, the assured may be liable to compensate the insurer to the extent of the prejudice.54
Special provisionexpress duties relating to proceedings in the standard forms
27.39 Whatever may be the general position regarding an assureds entitlement to bring proceedings, and his control over such
proceedings, it can clearly be modified by express contractual provision. Thus, in particular, the International Hull Clauses, clause
49.1.4, imposes a duty on an assured to take reasonable steps to co-operate with the Leading Underwriter(s) in the taking of such
steps as may be reasonably required to pursue any claims against third parties.55 That duty exists whether or not the insurer has paid
a claim or agreed to pay a claim or potential claim under the policy. Where such a duty is incorporated into the contract of insurance,
it would appear to displace any entitlement that an assured might otherwise retain to control the conduct of proceedings to enforce his
rights of action against third parties, where the insurer wishes such proceedings to be brought.
The laws treatment of proceedings conducted by the insurer in the name of the assured Generally
27.40 It is axiomatic that, even where an insurer has a right of subrogation, any cause of action remains formally vested in the
assured. Consistently with that, the fact that insurers are the real claimants is generally ignored. So, for example, the fact that the
assured is claimant on the record means that the assured is obliged to comply with the courts rules of procedure, and so, for example,
must make proper disclosure.56 It is suggested that the insurer is not under a duty under the rules of court to make disclosure of
documents in his possession, custody or power to a defendant; the insurer is only under a duty to procure disclosure of documents in
the possession, custody or power of the assured.57
Judgment and satisfaction
27.41 In an action brought by the insurer in his assureds name, any judgment for the claimant is in favour of the assured, and it
can be satisfied only by payment to (or presumably at the direction of) the assured;58 the cause of action remains the assureds,
notwithstanding the insurers right of subrogation. That statement must, however, be read subject to the important qualification that to
the extent that the proceeds recovered by the assured reduce the loss for which the assured has been indemnified by the insurer, the
insurer has a personal claim to recoupment against the assured for the amount of the overpaid indemnity.59 That claim now appears to
be secured by an equitable lien or charge over the proceeds of the action, at least whilst the proceeds remain part of an identifiable
fund.60 Furthermore, the insurer may be able to obtain an injunction, restraining the application of those proceeds, until any prior
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claim he may have by virtue of his lien has been satisfied.61

Interest
27.42 The quantification and allocation of awards of interest is addressed below.62
Costs
27.43 The quantification and allocation of costs awards is addressed below.63
The incidence and allocation of costs between assured and insurer The general principles regarding the benefit of
F.D. Rose
costs awards made in proceedings

27.44 The basic principle as regards the benefit of awards of costs made in favour of the assured as nominal claimant in
proceedings can be simply stated. A costs award can include the costs incurred in the proceedings even though they are in fact
incurred by the insurer; it is not open to a defendant to argue that the costs awarded were those of the insurer and not the nominal
claimant.64 The relative entitlements of insurer and assured to any costs recovered will be determined in light of who incurred them.65
To that extent, the position regarding the allocation of awards of costs made in favour of the assured as nominal claimant would
appear to mirror the position regarding the allocation of interest awarded. The fact that the action is a subrogated action is generally
ignored in quantifying an award; but as between insurer and assured, any award of interest made is allocated according to their
respective losses.66
The general principles regarding the burden of costs incurred in bringing proceedings
27.45 The position regarding the burden of costs incurred in proceedings is more complex. It must depend partly upon on whose
initiative the proceedings were brought, and partly upon the respective interests of insurer and assured in the outcome of the
proceedings.
Proceedings brought by the insurer
27.46 Where an insurer has fully indemnified his assured, the insurer has a right to insist that the assured permit him to commence
proceedings in the assureds name.67 If the insurer is unsuccessful in that action, the insurer will certainly bear all costs. It is probable
that the insurer must also bear the costs even of a successful action, and cannot claim to be recouped for any irrecoverable costs out of
any recovery obtained in those proceedings.68
27.47 Where the insurers payment under the contract has not fully indemnified his assured (because the assured is underinsured),
the insurer may nevertheless insist on bringing proceedings in the assureds name to recoup himself for the sums paid by way of
indemnity to the assured. If such proceedings are unsuccessful, it is suggested that the insurer must bear the costs.69 If the proceedings
are successful, however, any costs incurred could be appropriately allocated between insurer and assured according to their respective
interests in any recovery obtained. That is, to the extent that the assured obtains some recovery for his uninsured losses by virtue of
proceedings by the insurer, the assured should be required to contribute an appropriate part of the costs of obtaining the recovery.70
Proceedings brought by or on the initiative of the assured
27.48 An assured who is underinsured71 appears to retain the right to be dominis litis of any subrogated action,72 notwithstanding
that he has been fully paid under his contract of insurance. He may have a clear interest in bringing proceedings to recoup his
uninsured losses. An assured who brings such proceedings to a successful conclusion after he has been indemnified by his insurer can
deduct any irrecoverable costs from the recoveries to which the insurer may be entitled by way of recoupment to the extent that they
were reasonably and properly incurred in enforcing the assureds claim to those sums.73 By contrast, an assured who brings
proceedings without seeking payment from his insurer, and who subsequently recovers a full indemnity in those proceedings, appears
to have no general entitlement to reimbursement from his insurer for irrecoverable costs incurred in obtaining the recovery.74 It
follows that an assured who is underinsured is well advised to obtain payment under his policy before bringing any proceedings,
rather than bringing proceedings without making a claim on the policy.75
27.49 An underinsured assured who brings such an action to an unsuccessful conclusion, after indemnification by his insurer, is in
a different position. The distribution of the burden of any costs incurred may turn on whether or not the insurer authorised the
proceedings. It is suggested that, if authority was not given, the assured is unlikely to be able to claim reimbursement for those costs
from the insurer; he is likely to be considered to have taken the burden of litigation on himself. If authority was given, by contrast, in
the absence of any agreement between them, there seems to be no objection to holding the assured and insurer liable in accordance
with their relative interests in the outcome of proceedings.76
Proceedings brought by the assured, required by the insurer
27.50 Special considerations apply where there is a clause in the policy which requires the assured to take all necessary
proceedings in the interest of the insurer.77 In such circumstances, even in the absence of an express provision,78 a term is likely to be
implied into the policy that any costs that the assured incurs in complying with his obligation can be recovered from the insurers, to
the extent that they relate to the preservation or exercise of rights in respect of losses for which the insurers are liable under the
policy.79
Standard form clauses governing the allocation of costs
27.51 Standard form clauses which impose a duty on an assured to take active steps to preserve and/or exercise his rights tend to
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make express provision for the reimbursement of costs incurred in performance of the obligation.
27.52 One example is found in the Institute Cargo Clauses, which impose a duty on the assured and their employees to ensure
that all rights against carriers, bailees or other third parties are properly preserved and exercised;80 under the same clause, the insurer
undertakes to reimburse the assured for any charges properly and reasonably incurred in pursuance of [those duties].81
27.53 Another illustration is found in the International Hull Clauses.82 Clause 49 imposes several duties on the assured in
connection with potential recoveries, including duties to take reasonable steps to protect any claims against third parties,83 and to
cooperate with the leading underwriters in taking such steps as may reasonably be required to pursue any claims against third
parties.84 Clause 49 then makes further provision relating to costs incurred. First, the insurer undertakes to reimburse the assured for
F.D. Rose
the reasonable costs incurred by the assured pursuant to his duties under clause 49 in the same proportion as the insured losses
bear to the insured and uninsured losses.85 Second, the insurer undertakes to reimburse the assured for the reasonable costs
incurred by the assured pursuant to his duty to protect any claims against third parties, even though no claim is recoverable under the
policy, if the assured has obtained the insurers written agreement to the incurring of such costs before they are incurred.86 Third,
where recoveries are obtained from third parties in respect of claims paid in whole or in part under the insurance, the paying party
is entitled to be reimbursed first out of the recoveries for the reasonable costs and expenses incurred in making such recoveries.87
Awards of interest, and the allocation of interest between assured and insurer The general principles regarding the
allocation of interest
27.54 Where legal proceedings are brought to enforce an assureds right of action against third parties, any judgment in favour of
the assured may carry with it an award of interest. Case law has wavered as regards the quantification and allocation of awards of
interest in proceedings brought by an insurer in an assureds name. The best understanding of the law following H Cousins & Co Ltd
v D&C Carriers Ltd88 is that the quantification of interest to be awarded against a defendant in a subrogated action is not affected by
the fact that the nominal claimant, the assured, has previously been indemnified by the insurer. However, that fact will be relevant to
the relative entitlements of insurer and assured, as between themselves, in respect of any interest recovered. The interest will be
allocated according to their respective losses. That should ordinarily have the following consequences. As between insurer and
assured, the insurer can claim or retain the amount of any interest awarded in respect of a loss for which the insurer had indemnified
the assured, for the period after the indemnity was paid. Conversely, the assured can claim or retain 100 per cent of the amount of any
interest awarded in respect of any loss for which the insurer had not indemnified the assured; plus the amount of any interest awarded
in respect of a loss for which the insurer did indemnify the assured, for the period before the indemnity was paid.
Standard form clauses governing the allocation of interest
27.55 The allocation of interest can of course be the subject of express provision. Such provisions can be found in hull insurance
standard forms. Thus, the Institute Time Clauses (Hulls) contain an express provision which appears substantially to reflect the
allocative approach endorsed in H Cousins & Co Ltd v D&C Carriers Ltd:89
Interest comprised in recoveries shall be apportioned between the Assured and the Underwriters, taking into account the sums paid by the
Underwriters and the dates when such payments were made, notwithstanding that by the addition of interest the Underwriters may receive a larger sum
than they have paid.
27.56 The International Hull Clauses, by contrast, make no special provision for the allocation of interest. They make express
general provision for recoveries from third parties, in respect of claims paid wholly or partly under the policy, to be allocatednet
of the reasonable costs and expenses incurred in making such recoveriesbetween insurer and assured in the same proportion that
the insured losses and uninsured losses bear to the total of the insured and uninsured losses.90 It is not clear whether recoveries for
this purpose includes any interest recovered. If it does, the Clauses appear to adopt a different allocative approach from the strictly
compensatory approach suggested by Cousins v D&C Carriers.91
27.57 There is a common law precedent for that alternative allocative approach to interest. In The Commonwealth,92 insurers had
paid 1,000 in two instalments for the total loss of a ship, which was insured by them for 1,000 under a policy valued at 1,350. In a
subsequent action against the owners of the ship responsible for the collision, the owners admitted liability and paid into court a sum
which included 1,000 for the loss of the ship, and a further sum by way of interest, from the time of the casualty until the payment
into court. The Court of Appeal upheld the first instance decision that the assured was entitled to payment of 350/1,350ths of the
1,000 recovered on account of the loss of the ship.93 As regards interest, the first instance judge held that the interest on the 1,000
should be allocated 100 per cent to the assured up to the date of the first instalment of 500 paid by the insurers; equally between
assured and insurers up to the date of the second instalment of 500 paid by the insurers; and 100 per cent to the insurers thereafter.94
The Court of Appeal held that that allocation was wrong. The same principle applied to the interest on the 1,000 recovery as to the
1,000 recovery itself; it was to be divided in the same way.95
Responsibilities of the assured in connection with the insurers right of subrogation A duty (or duties?) not to
prejudice the insurers right of subrogation?
27.58 The value of an insurers right of subrogation may be substantially diminished by an assureds action or inaction. The
prejudice principally arises because of the adverse effect of the assureds action or inaction upon the rights which the assured might
otherwise have against a third party in respect of a loss covered by the contract of insurance. The relevant action or inaction may
occur before or after the contract of insurance has been entered into, and before or after the relevant loss has occurred.
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27.59 Where the value of an insurers right of subrogation is diminished by the assureds action or inaction,96 the insurer may be
entitled to relief. In particular, a number of decisions suggest that an assured has a duty not to prejudice the insurers right of
subrogation. The precise content of the duty recognised by those authorities remains unclear.97 It may be best conceived as a
generalisation of sets of more particular dutiesfor example, a duty on an assured not voluntarily to abandon his rights of action
against third parties, and a duty not to reach any settlement with a third party except in good faith.98 The duty (or duties) provides
legal recognition that an insurers right of subrogation is a valuable economic interest, which an assured must to some extent
safeguard; the right of subrogation is the means whereby the insurer can secure recoupment of the indemnity paid to the assured.
F.D. Rose
27.60 Any such duty (or duties) can now be appropriately conceived as arising pursuant to a promissory term implied in law into
any contract of indemnity insurance, as an incident of the insurers right of subrogation.99 Breach of the duty so conceived will be
actionable as a breach of contract.100 It is unclear whether breach would discharge the insurer from his primary obligations under the
contract of insuranceeither automatically or at his electionin the absence of express provision to that effect.101 At the very least,
however, breach of the duty would appear to afford the insurer a right to damages. Two cases illustrate that possibility.
27.61 In West of England Fire Insurance Co v Isaacs,102 a sub-lessee of a warehouse was paid 100 by his insurer for the damage
caused to the warehouse by a fire. The sub-lessor subsequently brought an action against the sub-lessee for breach of his covenant to
repair. That action was settled, in return for a payment by the sub-lessee of 140. As part of the settlement, the sub-lessee undertook
not to enforce his own rights under the sub-lease against the sub-lessor. One of those rights was the right that the sub-lessor should
insure against fire, and should use any sums received under the policy entered by it to meet the costs of repair of the premises. The
sub-lessor in fact received 100 from the insurance company. The Court of Appeal upheld the claim of the sub-lessees insurer to
recover 100, which was taken to be the value of the rights of which the insurer had been unconditionally deprived by the settlement.
27.62 In Phoenix Assurance Co v Spooner,103 the assured was served with a compulsory purchase notice in respect of her property
by a local corporation acting under statutory powers. Shortly afterwards, her property was destroyed by fire, for which she was paid
925 by her insurers, as the agreed amount of her loss. Subsequently, the assured and the corporation reached an agreement regarding
the amount to be paid by the corporation for taking over the property, pursuant to the compulsory purchase notice. The sum agreed
took into account the money paid by the insurers to the assured; and the corporation agreed to indemnify her against any claim that
might be made against her. The insurer successfully brought proceedings against the assured to recover 925.
27.63 On normal principles, any damages awarded to the insurer should be measured by the extent of the prejudice caused to the
insurer by the assureds breach. The insurer is prejudiced to the extent that the assureds breach will result in no recovery or reduced
recovery from the third party; and to the extent that that has the consequencein turnof diminishing the insurers claim to
recoupment against the assured. A strict compensatory measure would therefore reflect the diminution in value of the insurers
opportunity to obtain recoupment of the indemnity paid to the assured. That diminution in value might well be less than the amount of
the indemnity paid by the insurer.104 In the cases just noted, in which an insurer recovered against the assured, however, the insurer in
fact recovered a sum equal to the amount of the indemnity paid to the assured.105 It is not wholly clear whether courts will invariably
take the full amount of the indemnity paid by the insurer as the measure of the prejudice to the insurer, or whether they will follow
more closely compensatory principles; sound principle strongly suggests that, in so far as the claim is properly understood as a claim
to compensatory damages, the latter approach is correct.106
Forms of prejudiceconduct after a right of action has arisen against a third party Arrangements made with the
third party against whom a right of action has arisen
27.64 The duty of the assured not to prejudice his insurers right of subrogation appears principally to have been recognised in
practice in relation to action taken by the assuredand in particular, arrangements made by the assured with a third partyafter a
right of action has arisen against a third party in respect of the insured against loss. It may sometimes be a difficult question whether
the assureds dealings with a third party, against whom a cause of action has arisen, have in fact prejudiced the insurers position.
27.65 Such an arrangement seems clearly prejudicial if it is effective to prevent the insurer from subsequently enforcing the
assureds cause of action against the third party, and if the assured obtains no recovery in respect of which the insurer might claim
recoupment. That would occur where the assured effects a voluntary and unconditional release of his cause of action against the third
party. It would also potentially occur where, for example, an assured brings proceedings only in respect of uninsured losses, which
culminate in a settlement or judgment for those losses, and that settlement or judgment prevents later proceedings by the insurer in
the name of the assured in respect of the insured losses.107 The cases108 suggest that, except in exceptional circumstances when the
judgment can be set aside, a judgment in respect of the uninsured portion of an assureds loss will preclude a later action in respect of
the insured portion of the loss, where there is only one cause of action for the losses, and not two separate causes of action for the
insured and insured parts. If there is just one cause of action, a second action will be regarded as an abuse of process, and will be
struck out.
27.66 More difficult are those cases where the assured settles his cause of action against a third party in return for some payment.
To the extent that that payment reduces the assureds insured losses, the insurer may be entitled to recoupment from the assured for
the amount of the overpaid indemnity. The insurer would therefore only seem to be substantially prejudiced in such a case if the
insurers entitlement to recoupment is diminished because the assured settled for less than the amount that could reasonably have
been obtained. That may be difficult to establish. In practice, it may be that the true principle is that a bilateral settlement will not be
regarded as prejudicialso as to constitute a breach of duty by the assuredif it is entered bona fide.109 27.67There are in fact
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some suggestions that a settlement with a third party which might otherwise prejudice an insurers rights, if legally effective, will be
ineffective visa-vis ` the insurer where the third party enters the arrangement knowing that it will prejudice the right of subrogation
which the insurer has acquired or will acquire on indemnifying the assured.110 Quaere whether it would be sufficient that the third
party knows that the assured has been or may in future be paid by his insurer, or whether the third party must know the legal
consequences of the arrangement. The juristic basis of the ineffectiveness of such arrangements, made in fraud of the insurers right
of subrogation, is not entirely clear.111 Even if such arrangements are legally effective, it is conceivable that the third party might
incur a personal liability to the insurer for a civil wrongmost obviously, the tort of wrongful interference with the contractual
relations between assured and insurer.112
F.D. Rose
Loss of cause of action by failure to assert rights against third party

27.68 It is unclear whether the implied duty of an assured not to prejudice his insurers right of subrogation extends to prejudice
caused by inaction by the assuredso as in effect to require the assured to take action to prevent his causes of action against third
parties from being prejudiced by the running of time.113 Even if no such implication is generally made, such a duty might
exceptionally be implied in particular cases. But, in any event, cargo insurance and hull insurance standard forms include clauses
which expressly impose duties on the assured, their employees and agents (inter alia) to take steps to preserve any claims he may
have against third parties.114
Forms of prejudiceconduct before a right of action has arisen against a third party
27.69 It is similarly unclear how far the implied duty of an assured not to prejudice his insurers right of subrogation extends to
prejudice caused by action by the assured before any right of action has arisen against a third party. The assured may make a contract
with the third party, before the contract of insurance is effected and/or before the loss occurs, which excludes or limits the rights
which the assured would otherwise acquire against the third party in respect of the losses insured against. If effective, such a contract
clearly diminishes the value of the right of subrogation which the insurer acquires on indemnifying the assuredrights against the
third party to which the insurer would otherwise become subrogated are excluded or limited by the prior contract. The contract may
exclude or limit the third partys liability to the assured expressly or by implication (for example, via terms whereby the assured
agrees to afford the third party the benefit of his insurance).115
27.70 Where the contract containing such a term is entered into before the contract of insurance, and the term is material to the risk
assumed by the insurer, the assured has an obligation to disclose the term.116 Non-disclosure will entitle the insurer retrospectively to
avoid his obligations under the contract.
27.71 In the absence of a claim founded on precontractual non-disclosure of the existence of such contract terms, the insurers
claim would probably have to be founded on the assureds duty not to prejudice the insurers right of subrogation.117 It is a difficult
question how far that duty extends to limit an assureds freedom to contract before the assured suffers loss and a right of action has
actually arisen against a third party.118 There are certainly dicta that, if such terms do prejudice the insurers right of subrogation, the
insurer will have a claim to damages against the assured.119 Nevertheless, two caveats are required. First, as the duty arises as a
consequence of the contract of insurance, it could only be breached by prejudicial contracts entered into after the formation of the
contract of insurance.120 Second, there are hints in Canadian Transport Co Ltd v Court Line Ltd121 that express exclusion or limitation
clauses might fall to be treated differently from benefit of insurance clauses. An exclusion or limitation clause, at least, might not
be conceived as prejudicial in the relevant sense. The assumption appears to have been that an insurers right of subrogation is a
right to be subrogated to the assureds rights against a third party. If a prior contract between the assured and the third party means
that no rights, or only limited rights, arise against the third party, the right of subrogation which the insurer subsequently acquires is
correspondingly (and inherently) limited. A benefit of insurance clause was, by contrast, conceived as more obviously
prejudicial. The assumption seems to have been that such a clause does not attenuate the assureds rights against the third party; it
attenuates the insurers rights of subrogation in respect of rights of the assured which admittedly arise against the third party. It is not
clear that a distinction can sensibly be maintained in practice between the two types of clause. Benefit of insurance clauses have
been treated as, in effect, implied exclusions or limitations of the assureds rights against the third party.122
27.72 Whether the provision excluding the assureds recourse against the third party is concluded before or after the insurance
contract is made, the insurers position may be safeguarded if in the insurance contract the assured warrants that he will not prejudice
the insurers right of subrogation, for non-compliance will be a breach of warranty discharging the insurer from liability and thereby
rendering otiose the possibility of subrogation.123
Forms of prejudicesubsequent insurance arrangements
27.73 It was suggested in Boag v Standard Marine Insurance Co124 that, unless a right to enter further insurance arrangements is
reserved in the insurance contract, subsequent insurance arrangements cannot, as a matter of law, prejudicially affect the first
insurers rights. The decision strictly concerned how third-party recoveries obtained by an assured should be allocated between
multiple insurers, for the purpose of determining the extent of each insurers claim to recoupment. In Boag the later arrangement was
an increased value insurance policy. A cargo was insured with one insurer for its full value at shipment. Later, when its value rose
during shipment, the same cargo was insured for its increased value with other insurers. Following total loss of the cargo, the primary
insurer was held to be entitled, on paying for the total loss, to recoupment from sums recovered by the cargo-owners in priority to the
increased value insurers. The later insurers were not entitled to recoupment of a share proportionate to the amount of their increased
value policy. It has been assumed that a different result would have followed in Boag if the assured had expressly or impliedly
reserved in the insurance contract a right subsequently to enter into an increased value policy. In any event, the Institute Cargo
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Clauses include an Increased Value Clause.125 Where incorporated, the clause displaces the principle in Boag. It allows the
increased value insurer, on indemnifying the assured, to share proportionately in recoveries obtained.126
Responsibilities of the insurer in connection with the assureds right of action
27.74 It has been suggested that there is an implied term in the contract of insurance that an insurer will not exercise his rights of
subrogation in a manner which prejudices the assured.127 An illustration of a breach of such a term, giving rise to a right to damages,
might arise where the insurer has executed a binding settlement of the assureds rights (pursuant to the ordinary rules of agency)128 on
prejudicial terms. A settlement might be prejudicial where the insurer settles for the insured amount, yet the assured suffered
losses exceeding that amount, and the third party was liable for a sum exceeding the insured amount;129 or where exceptionally the
F.D. Rose
assured has lost the chance of recovering more than the loss actually suffered.130
27.75 An allegation of misconduct that might constitute breach of such a term was recently considered in the non-marine
insurance case of England v Guardian Ins Ltd.131 In that case, it was alleged that the insurers had acted in breach of the implied term
in various ways, including initially denying liability, and only admitting liability at a late stage. The judge considered that the only
element of the insurers conduct which was at least potentially a breach of the implied term was a letter written by the insurers to
the Legal Aid Board, in which the insurers suggested that it was inappropriate for the Board to continue to assist the assureds. If the
assureds had suffered loss as a result, they would have a remedy in the form of a cross-claim for damages for the loss suffered. On the
facts, however, no such loss had been caused by the alleged breachfor the letter had not caused the Legal Aid Board to withdraw
support for the action, and had not otherwise affected its outcome.132
Defences available to the third party in subrogated actions Generally
27.76 As the rights to which the insurer is subrogated are those of the assured, the rights can be no better than those of the assured,
and the insurers position to enforce them can be no better than that of the assured. Thus, for example, if the assureds right of action
against a third party is barred by the running of time, the right of action issimilarlyno longer enforceable by the insurer.
Contracts between the assured and a third party
27.77 An assured may contract with a third party in terms which effectively exclude or limit the right of action which the assured
would otherwise have against the third party.133 The insurers right of subrogation will be correspondingly limited. Such an exclusion
or limitation may be express,134 or implied. Whether an exclusion can be implied in particular circumstances can be a difficult
question. Where it is contemplated by the parties that the assured will obtain insurance, the underlying question would appear to be
whether, in the circumstances, it can be inferred that the assured has undertaken to look to his insurer, to the exclusion of the third
party, in the event of the relevant loss occurring.135
27.78 Where such arrangements are entered into before the contract of insurance is entered into, and they are material to the risk
assumed by the insurer, the assured will have a duty to disclose the arrangements; if they are not disclosed, the insurer will be entitled
to avoid his obligations under the policy.136 Where such arrangements are subsequently entered into, it has been suggested that the
assured might sometimes be liable to the insurer for the extent of the prejudice thereby caused to the insurers right of subrogation.137
Waiver of subrogation clauses in the contract of insurance
27.79 A contract of insurance may include an express or implied waiver of subrogation clause, whereby the insurer agrees not to
exercise rights of subrogation against certain persons or categories of person.138
27.80 Where the waiver relates to persons who are not parties to the contract including the waiver, an enforcement problem
potentially arises. Prima facie the doctrine of privity of contract prevents a third party directly relying on the waiver clause. However,
the clause might be enforceable by the assured himself by way of an injunction if the assured can show a sufficient interest in
preventing the insurer proceeding against the third party.139 Furthermore, the third party might now be entitled to enforce the waiver
clause in his own right if the Contract (Rights of Third Parties) Act 1999 applies.140
27.81 There is no requirement that an express waiver of subrogation clause must relate to the person indemnified under the
policy, nor that such a clause must be construed to relate only to the person indemnified.141 However, unless clearly worded, an
express waiver clause which extends to parties who are co-assureds under the policy may be so construed that the protection of the
clause is co-extensive with each co-assureds cover under the policy. In National Oilwell (UK) Ltd v Davy Offshore Ltd,142 main
contractors for the construction of a North Sea oil rig took out a builders all risks policy which included a clause whereby the insurers
waived their rights of subrogation against any Assured and any person, company or corporation whose interests are covered by this
policy. Colman J considered that such a clause would only protect a co-assured against subrogated claims arising from loss or
damage for which the co-assured itself could make a claim against the insurer under the policy. To the extent that the subrogated
claim against the co-assured was in respect of loss or damage which fell outside the co-assureds cover under the express terms of the
policy,143 or for which the co-assured would be prevented from making a claim against the insurer on some other ground144 (for
example, because the losses were attributable to the co-assureds own wilful misconduct145 or breach of the co-assureds duty to
minimise its losses)146 the co-assured subcontractor could not rely on the waiver of subrogation clause. To construe the clause more
broadly, to include a subrogated claim arising in respect of losses falling outside the scope of the co-assureds cover, would amount to
a de facto extension of that cover vis--vis the insurers.147
27.82 A waiver of subrogation clause may sometimes be implied into a contract of insurance. Such a clause has been offered in
some recent cases as the explanation for the legal obstacle to an insurer bringing a subrogated action against a co-assured under the
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same policy.148 A waiver could also in theory be implied in favour of a party other than a co-assuredthough such an argument failed
in The Yasin.149 Cargo sold cif was shipped on a vessel, pursuant to a charterparty which required the shipowner to take out an
insurance policy at its own expense, to cover the receivers for, inter alia, total loss of the cargo. Subsequently, the ship and cargo were
a total loss. After indemnifying the receivers, the cargos insurers brought a subrogated action against the shipowner, alleging that the
ship had been unseaworthy at the commencement of the voyage. The shipowner argued, inter alia, that the action could not be
brought, because there was an implied term in the insurance policy that the insurers would not exercise any right of subrogation
against the shipowner. Lloyd J considered there was no sufficient ground for implying such a term on the facts.150 There was an initial
difficulty that the shipowner, who effected the policy as agent only,151 was not party to the contract of insurance into which the term
was to be implied. But, even aside from that, the contract was an ordinary commercial contract, to be construed in accordance with
F.D. Rose
the ordinary principles of construction of such contracts, and it was unnecessary to imply the term to give the contract efficacy.
Indeed, the alleged waiver of subrogation rights against the carrier would be contrary to the express term of the contract, requiring the
assureds or their agents in all cases to take such measures as may be reasonable for the purpose of averting or minimising a loss or to
ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised.
Subrogated actions against co-assureds
27.83 It is widely accepted that an insurer cannot exercise subrogation rights against parties who are co-assureds under the same
contract of insurance.152 There has been significant recent debate about the basis and extent of the objection to such subrogated
claims.153 The earliest discussions suggested that the barrier rested on a general concern to avoid circuity of actions.154 However, more
recent decisions have treated the issue as essentially one of construction of the contracts between the parties. One particular
suggestion is that a term must be implied into the contract of insurance in response to the inconsistency of an insurer bringing a
subrogated claim in one assureds name against a co-assured, which arises in respect of loss or damage for which the co-assured
would himself be entitled to claim under the policy.155 The theory appears to be that it would be so inconsistent with the obligation
undertaken by the insurer to the co-assured in the policy, if the insurer could bring a subrogated action against the co-assured in
respect of loss or damage for which the insurer had undertaken to indemnify him, that a term must be implied that the insurer would
not bring a subrogated action against the co-assured in those circumstances.156 It is suggested that the co-assured can rely on his rights
under the policy as a defence to any subrogated action which the insurer causes to be commenced in breach of that term.157
27.84 On that understanding of the basis of the obstacle to subrogated actions against co-assureds, the objection would not be
confined to cases where the co-assured was covered by the policy against third-party liability.158 However, it has been suggested that
the obstacle would apply only to the extent that loss or damage of the kind which occurred, caused in the way in which it was caused,
was insured for the benefit of the co-assured.159 That is, the implied term would only preclude subrogated claims for loss or damage in
respect of which the co-assured could himself claim under the policy. The co-assured would have no defence to the extent that the
subrogated claim by the insurer is not a claim for loss or damage for which the co-assured could himself make a claim under the
policy. That might be because the claim falls outside the cover expressly provided to the assured under the policy, or because it is a
claim for which the assured cannot claim because the relevant loss was attributable to his wilful misconduct, or to breach of his duties
to minimise his losses.160
Other possible limitations
27.85 An insurers right of subrogation may be affected by an agreement between himself and another insurer,161 although it is not
obvious that, if a subrogated action was brought by an insurer in breach of such an agreement, the third party could directly rely on
the agreement by way of defence.162
27.86 It is also sometimes suggested that there may be public policy limitations on an insurers right of subrogation, although the
support in English case law for that proposition is thin.163 It was argued in The Yasin164 that an insurer could not assert his rights of
subrogation via a subrogated action if that would be contrary to equity or unjust. Without clearly rejecting that argument in
principle, Lloyd J considered that there was no injustice on the particular facts,165 where a cargo insurer had brought a subrogated
action in respect of loss of the cargo against the shipowner who had effected the insurance at its own expense and for the benefit of
the receivers, pursuant to its duty under the charterparty.
III THE INSURERS CLAIM TO RECOUPMENT: THE PERSONAL CLAIM
Introduction
27.87 Where the insurer pays his assured for a loss, and the assured obtains a recovery from a third party which reduces that loss,
the insurer is likely to have a personal claim to restitution against his assured of the amount by whichin the eventhe has overpaid
his assured for the loss. The following section describes the nature and quantum of that claim to restitution. It is described, for
convenience, as the insurers claim to recoupment.
27.88 The insurers claim to recoupment against his assured is a direct product of the nature of a contract of indemnity. The core
of such a contract is that the insurer undertakes an obligation to indemnify his assured against a specified loss. To the extent that
the loss insured against is properly regarded as reduced by a recovery obtained by the assured from another source, the assured
would obtain more than a full indemnity for the loss if he could retain both the sums paid by the insurer under the contract of
indemnity and the sums received from that other source. He would be over-indemnified at the expense of the insurerwho has
undertaken to indemnify him only against a loss which, in the event, he has not suffered. Where the assured has not yet been paid
by the insurer, the problem is avoided by recognising that the insurers liability under the policy is reduced or extinguished by the
third-party recovery. Where the assured has been paid by the insurer, the problem is avoided by affording the insurer a claim to
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recoupment against the assured of the amount of the overpaid indemnity.

27.89 Properly understood, the principles governing the insurers claim to recoupment are of general application. They determine
the extent of the insurers entitlement against his assured where the insurer has mistakenly overpaid the assured after the loss insured
against has been diminished by some other means. And they also determine the extent of the insurers entitlement against his assured
in respect of recoveries which are obtained after the assured has been indemnified by the insurer, whether those recoveries are
obtained following the exercise of a right of action vested in the assured by the assured himself or by the insurer pursuant to his right
of subrogation, or are obtained by the assured independently of any right of action vested in him.
F.D. Rose
27.90 The insurers claim to recoupmentin substance a personal claim to restitution of the amount of the overpaid indemnityis
best understood as having a common legal basis in all of those circumstances.166 Little is added by describing the claim in the
language of the old forms of action for money had and received. And nothing is gained by describing the claim, in some of its
manifestations, as a claim for money had and received, and in other manifestations as a claim resting on the assureds duty to
account.167 In each case, the claim arises in the absence of any express provision in the contract of insurance; its quantum is the
samethe amount of the overpaid indemnity; and it can be explained by a common rationale. Whilst some judges have suggested
that the insurers claim can rest on terms implied as a matter of course into contracts of insurance,168 the claim can alternatively be
understood as a policy-motivated cause of action for restitution of the assureds unjust enrichment, obtained at the insurers
expense.169 The underpinning policy is the prevention of the over-indemnification of the assured at the expense of his insurera
policy triggered by the underlying character of the arrangement pursuant to which the payment was made by the insurer. As the
arrangement is a contract of indemnity against loss merely, it is improper for the assured to accumulate and retain two recoveries for
the same lossfrom his indemnity insurer and a third party. Furthermore, since (or if), as between insurer and third party, it is
appropriate for the third party to bear the burden of paying for the assureds loss, the assureds enrichment, which results from the
accumulation of recoveries from two sources, is properly regarded as being received at the expense of the insurer. If accepted, that
rationale can explain the insurers claim to restitution whether the indemnity is paid to the assured before or after the third-party
recovery is obtained by the assured.
The preconditions of the insurers claim to recoupment Over-indemnification of the assured by the insurer under
the contract
27.91 The key prerequisite for the insurers claim to recoupment is that the assured has been over-indemnified by the insurer,
pursuant to the policy, for losses insured against. That over-indemnification arises to the extent that the assured has obtained some
other recovery which reduces those losses.
The recoveries which trigger the insurers claim to recoupment
27.92 As the insurers claim to recoupment ultimately rests upon the mischief of double recovery or over-indemnification at the
expense of the insurer, it will not be triggered by any recovery obtained by the assured. It is only triggered by a recovery which is
properly considered to diminish losses covered by the policy, for which the assured has been indemnified by the insurer.170 Whilst the
core example of such a recovery is a sum paid as compensation for the loss by a third-party wrongdoer, the range of potentially
relevant recoveries cannot be so confined.171 The same answer must be given by courts, whether the question is whether the
insurers liability to make payment to the assured under the policy is reduced or extinguished by the third-party recovery, or whether
the insurer has a claim to recoupment from the assured in respect of payments previously made.172
27.93 One particular problem has concerned the appropriate treatment of voluntary payments or gifts made to the
assuredpayments or other recoveries obtained by the assured, which the assured had no prior legal entitlement to receive. Judges
have not been wholly unanimous as to whether an insurer can treat voluntary payments or gifts as reducing the assureds loss.173
It has sometimes been suggested that a voluntary payment cannot be taken into account, as it is not received as of right. Yet there is
no obvious reason why a recovery can never be regarded as diminishing the assureds losses unless the recovery is obtained pursuant
to a right held by the assured. The key consideration as regards voluntary payments appears to be the intention with which the
payment was made. Such a payment can be considered to reduce the loss insured against, vis--vis the insurer, if it was made to
reduce the loss, and was not intended otherwise to be exclusively for the benefit of the assured.174
27.94 The identification of whether the assured has obtained a relevant recovery and the quantification of the insurers
resulting entitlement to recoupmentcan sometimes involve difficult questions of apportionment. The insurer may have indemnified
the assured for varieties of loss which overlap withbut are not wholly co-extensive withthe varieties of loss for which the
third-party recovery was obtained. In quantifying the insurers entitlement to recoupment, a process of apportionment may be
involved. The insurer will only have a claim to recoupment in respect of the third-party recovery to the extent that the third-party
recovery is properly attributable to the variety of loss for which the assured was indemnified by the insurer. To the extent that it is
not, there is no double recovery and no objection to the assureds retaining both the sums paid by way of indemnity by the insurer
and the third-party recovery.
27.95 That important process of apportionment is well illustrated by the recent decision in England v Guardian Ins Ltd.175
Homeowners had brought actions against third parties whose activities on adjacent property had wrongfully caused them loss, as well
as an action against their insurer for payment under the policy and for damages for breach of the insurers obligation. The action
against the insurer was settled first, for the sum of 102,000. Subsequently the assureds recovered 126,000 from the third parties. A
simple calculation would suggest that the insurer should have been entitled to recoupment of the entire 102,000 paid, on the basis
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that it was paid to indemnify a loss which was subsequently made good by the third-party recovery. The obstacle to that conclusion
was that, whilst substantially overlapping, the relevant recoveries did not necessarily cover precisely the same ground. The 102,000
recovered from the insurer was paid by way of settlement of claims against the insurer which covered many of the claims for which
the 126,000 was recovered, but also, on one view, other claims. Those claims included certain claims for losses suffered by the
assureds which were held to give rise to no entitlement to damages against the third party, as well as claims for irrecoverable costs
incurred by the assureds as a result of the insurers failure to indemnify them under the policy. The judge considered that the insurer
would only be entitled to recoupment in so far as the 102,000 was paid for losses for which the assureds were indemnified by the
third party. To the extent that it was paid for other losses, there would be no double recovery by the assureds, and no basis for the
insurers claim to recoupment. In the event, however, the judge concluded that the 102,000 paid by the insurer was paid solely to
F.D. Rose
meet the assureds claim to damages for the costs of reinstatement of the property, which had constituted the substantial part of the
126,000 award against the third party. He rejected the suggestion that the 102,000 was paid in respect of other losses for which no
recovery could be obtained from the third party, on the basis that those losses properly viewedgave rise to no claim against the
insurer. The judge was unwilling to assume that the 102,000 had been paid to the assureds in respect of claims which had no legal
basis.
The quantification of the insurers claim to recoupmentthe limits of the claim The basic measurethe amount
of the overpaid indemnity, and no more
27.96 There was much debate in earlier authorities about whether an insurer, upon indemnifying his assured, would be entitled to
all of the fruits of any right of action to which he was entitled to be subrogatedat least where payment was made for a total loss.176
Subject to two minor qualifications, it is now clear that the insurer is not so entitled, whether he pays for a partial loss or for a total
loss.177 The insurers basic entitlement is to recover the amount sufficient to recoup him for the indemnity overpaid to his assured.
That is consistent with the underlying rationale of the insurers claim to recoupmentto prevent the over-indemnification of the
assured under the contract of insurance, at the insurers expense.178
Circumstances in which an insurers entitlement may exceed the amount of the overpaid indemnity
27.97 The qualifications to the proposition that an insurers entitlement to recoupment is limited to the amount of the overpaid
indemnity are twofold. First, it is possible for the terms of a particular contract of insurance to displace that general principle and
provide for the insurer to have more extensive rights in respect of recoveries obtained by the assured.179 Second, the insurer is entitled
to recover from the assured an appropriate share of an award of interest and/or costs made in an action in which such a recovery is
obtained,180 in addition to the amount of the overpaid indemnity. In short, subject to contrary provision, the insurers basic entitlement
is to recoupment of the amount of the overpaid indemnity plus an appropriate share of any interest and/or costs awarded in the
relevant action.
The destination of any surplus received by the insurer in excess of his entitlement
27.98 Where a subrogated action produces a recovery which exceeds the amounts to which the insurer is entitled, and that
recovery is received by the insurer, the insurer holds the surplus recoveries on trust for the assured.181
The quantification of the insurers entitlementthe deduction for unrecovered costs
27.99 Where a relevant recovery is only obtained by the assured as a result of legal proceedings, the assured may have incurred
certain costs to obtain the recovery which are not otherwise recouped. It may be that the insurer has a contractual obligation, express
or implied, to reimburse those expenses.182 Even in the absence of such an obligation, however, Assicurazioni Generali De Trieste v
Empress Assurance Corporation Ltd183 indicates that, when quantifying an insurers claim to recoupment from his assured, the
relevant recovery obtained by the assured is treated as net of the unrecovered costs reasonably and properly incurred by the assured
in enforcing his claim thereto.184 That approach was recently endorsed in England v Guardian Insurance Ltd,185 where it was
suggested, however, that such an allowance could only be made where such costs were incurred after the assured had been
indemnified by his insurer.186
27.100 The basis and extent of the deduction made for unrecovered costs was explored at some length in England v Guardian
Insurance Ltd.187 The judge suggested that the appropriate deduction for reasonably incurred expenditure was governed by equitable
principles. An assured had to show that any expenditure sought to be deducted was sufficiently linked to attempts to reduce the loss
which the insurer had already indemnified that it would be inequitable for the insurer to obtain recoupment without giving the
assured credit for that expenditure. Following a full consideration of relevant authorities,188 the judge concluded that it was possible to
deduct any legal or other reasonably incurred expenditure arising in reasonable attempts to recover the loss that has been insured.
Expenditure might be deducted even if it was incurred in connection with a claim which failed; furthermore, such expenditure was
not confined to legal costs and expenses incurred as part of the action, but could also extend to pre-trial investigations and other costs
that were reasonably directed to attempts to reduce the insured loss. An assured has a generous margin of appreciation in deciding
whether to incur the expenditure. However, the test of reasonableness is an objective testwas the expenditure reasonably
directed to minimising the loss and was it reasonable to have incurred it for that purpose?and it must be answered in the insurance
context. The question cannot be answered by considering whether the relevant expenditure was reasonable in another context (for
example, for the purpose of legal aid or taxation of costs).189 It seems that, if only part of any third-party recovery will be subject to
the insurers claim for recoupment, a court is likely to allocate the costs incurred proportionately, according to the parties respective
interests in the recovery.190
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The quantification of the insurers entitlementthe allocation of recoveries

27.101 Although the insurers basic entitlement is limited to the amount of the indemnity overpaid by him under the policy,191
that principle provides no guide to the proper measure of the insurers claim, up to that limit, in any particular case.
27.102 The basic principle is easily stated. The insurer can claim recoupment of the sums overpaid under the policy to the assured,
to the extent that the recoveries obtained are properly regarded as having diminished the losses insured against and for which the
insurers payment was made.
27.103 To the extent that the relevant recovery is clearly for different losses from the losses for which the indemnity is paid by
the insurer, no difficulty arises. But greater difficulties arise where the relevant recovery is for losses for which the indemnity is paid
F.D. Rose
by the insurer, but where that indemnity is insufficient to compensate those losses to their full extentie, where the assured is
underinsured in respect of the losses. The policy may limit the extent of the insurers liability for those losses by providing that the
insurer will only indemnify those losses to the extent that they exceed a specified level, and/or by imposing an upper limit on the
insurers liability. The law then faces an important allocative questionhow are recoveries obtained from third parties in respect of
those losses to be allocated between insurer and assured?
27.104 It is axiomatic that the law should answer that allocative question consistentlyin the absence of clear contrary provision
in the policywhether the question is whether the insurer is liable to pay the assured under the policy, or whether having paid the
assured the insurer has a claim to recoupment against the assured of the amount overpaid under the policy.192 Unfortunately, the laws
approach to allocation, in the absence of express provision in the policy, remains to some extent unsettled.
Allocation under the general law, in the absence of agreed allocation Allocation pre- Napier v Hunter allocation
to the assureds uninsured losses first?
27.105 Before Napier v Hunter,193 it was often suggested that the laws starting-point was or should be that an insurer has no claim
to recoupment in respect of a third-party recovery obtained by the assured, even after the insurer has fully indemnified the assured in
accordance with the policy, until the assured has been fully indemnified for his actual losses.194 Any recovery would be allocated to
the assureds uninsured losses first, and the insurer could only claim the benefit of the third-party recovery to the extent that it
exceeded the assureds outstanding uninsured losses. Put differently, the insurer could not treat the third-party recovery as reducing
the losses for which he indemnified the assured, unless and until the assured had been fully indemnified for his actual losses in excess
of the indemnity paid by the insurer.
27.106 That allocative rule, which denies the insurer any claim to recoupment until the assured has been fully indemnified for his
actual losses, has usually been supported on one or both of two grounds. The first is that, if the laws underlying concern is to avoid
the unjust enrichment of the assured at the insurers expense, arising from the accumulation of multiple recoveries for the same
losses, there is no double recovery, and no unjust enrichment to be prevented, unless the accumulated recoveries exceed the
assureds actual losses.195 The second is the proposition that the law is or should be concerned to ensure that the assured obtains a full
indemnity, and not merely that he does not obtain more than a full indemnity.196
27.107 Whatever its merits, there has been little room for that allocative rule in the law of marine property insurance, at least.197
That is a consequence of the special rules, described below, applying to full insurance under valued policies, and to cases of
underinsurance. They have the consequence that recoveries are generally allocated to the insurer first, or are allocated pro rata
between insurer and assured in the same ratio as the insured and uninsured losses bear to the full agreed or actual measure of the
assureds loss. Put differently, either the insurer can treat any recovery as reducing the losses for which he has indemnified the
assured first, or the insurer can treat any recovery as reducing the losses for which he has indemnified the assured in the proportion
that the insured losses bear to the full agreed or actual measure of the assureds loss.
Allocation in marine insurancefull insurance under valued policies
27.108 Where the policy is a valued policy, and the subject matter is insured for its full agreed value, any recoveries by the assured
have been allocated first to the insurer.198 The corollary is that the insurer has a claim to recoupment against the assured in the amount
of the assureds recovery, up to the amount of the indemnity paid to the assured.199 It does not matter, first, that the actual value of the
subject matter exceeds its agreed value; secondly, that the assureds actual loss exceeds the indemnity paid by the insurer; thirdly, that
the third-party recovery reflected the greater actual value of the subject matter or a proportion thereof; fourthly, that the third-party
recovery exceeded the indemnity paid by the insurer; or fifthly, that the loss for which payment is made, in accordance with the
agreed value of the subject matter insured, was a partial loss.
27.109 The first and second propositions are illustrated by North of England Iron Steamship Insurance Association v
Armstrong.200 A vessel with an actual value of 9,000 was insured for 6,000, the agreed value being 6,000. After the vessel had
sunk in a collision, the insurers paid the assured 6,000 for a total loss. Subsequently, 5,000 or so was recovered by the assured in
respect of the insured ship by way of settlement with the owners of the other ship. The insurers were entitled to recover from the
assured the full amount of the third-party recovery obtained by the assured.
27.110 The third proposition is illustrated by Thames & Mersey Marine Insurance Co v British & Chilean Steamship Co.201 A ship
was insured for 45,000, its full agreed value. Following a collision, the insurers paid the insured sum as for a total loss. In
subsequent proceedings, both ships were held responsible. The insured owners therefore recovered judgment for damages reflecting
only 5/12ths of their losses. However, for the purposes of that judgment, the ships value was taken to be its actual value, which was
65,000. The insurers were held entitled to recover the full amount of the third-party recovery, as that did not exceed the amount paid
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by the insurers under the policy.

27.111 The fourth proposition is illustrated by Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd,202 where owners, who had
been paid 72,000 for an actual total loss on an agreed value of 72,000, had obtained a recovery from the owners of the ship
responsible for the collision which, exceptionally, proved to be worth an additional 55,000. The insurers were held to be entitled to
recover only the full amount of the indemnity paid to the assured. The assured was entitled to the surplus.
27.112 The fifth proposition is supported by Goole & Hull Steam Towing Co v Ocean Marine Insurance Co.203 A ship, insured for
its full agreed value of 4,000, suffered a partial loss in a collision, leading to repair costs of 5,000. The assured recovered 2,500
F.D. Rose
from the other party responsible for the collision, and then sought payment for its outstanding 2,500 loss from the insurers. The
judge considered that the insurers liability to make payment under the policy in those circumstances fell to be determined in
accordance with the same principles as would determine the insurers entitlement to recoupment, if payment had been made under the
policy. On that basis, the insurers were entitled to the benefit of the full amount of the third-party recovery, and their outstanding
liability under the policy was therefore only 1,500. It was assumed that, if the insurers had paid 4,000 for the partial loss, the
insurers would have been entitled to recover the full amount of the third-party recovery, as that would not exceed the amount paid by
the insurers.
Allocation in marine insuranceunderinsurance
27.113 A different approach, involving a pro rata allocation of recoveries between insurer and assured, has been applied in cases
of underinsurance under marine property policies. Such underinsurance exists where the policy is valued and the amount insured
is less than the agreed value of the subject matter, or where the policy is unvalued and the amount insured is less than the actual
insurable value of the subject matter. The formal explanation for the pro rata allocation is that it is a corollary of the division of risk
resulting from the Marine Insurance Act 1906, section 81. Section 81 provides that, where an assured is insured for an amount less
than the agreed value in a valued policy, or for an amount less than the insurable value in an unvalued policy, he is deemed to be his
own insurer in respect of the uninsured balanceie, the difference between the amount insured and the subject matters agreed or
actual insurable value.204 Any third-party recoveries are therefore allocated between the insurer and the assured in proportion to their
respective interests in the subject matter, as actual or deemed insurersie, they are allocated pro rata between insurer and assured in
the same ratio as the insured and uninsured losses bear to the full agreed measure (if a valued policy) or the actual measure (if an
unvalued policy) of the assureds loss. The corollary is that the insurer has a claim to recoupment against the assured in respect of a
proportionate amount of the assureds recovery, up to the amount of the indemnity paid to the assured.
27.114 The leading authority is The Commonwealth,205 which involved under- or partial insurance under a valued policy. A vessel
was insured for 1,000 by a policy in which the agreed value was 1,350. The insurers paid 1,000 for a total loss, after the vessel
was sunk in a collision with another vessel. In subsequent proceedings, the other vessels owners paid 1,000 into court in respect of
loss of the ship. On an application by the assured for payment out of court, the assured claimed 350/1350ths of the 1,000 recovery,
whilst the insurer claimed that, having paid 1,000 for a total loss, it was entitled to the whole of the 1,000. The Court of Appeal
rejected the insurers argument, holding in substance that the relative entitlements of insurer and assured to any recoveries received
reflected the risk that each was taken to have undertaken. The assured had to be treated as his own insurer as regards the 350
uninsured balancethe difference between the agreed value of 1,350 and the insured amount of 1,000. The 1,000 recovery was
therefore to be allocated between insurer and assured in proportion to their respective interests as insurersor more simply,
proportionately to the insured and uninsured losses. The resulting division was therefore 1,000/1,350ths to the insurer and
350/1,350ths to the assured.
27.115 Although The Commonwealth was a simple case of partial insurance, there is no suggestion that any distinction is to be
drawn between different types of uninsured lossesin particular, those falling within a policy deductible, or those amounts in
excess of a policy limit. If the assured is deemed to be his own insurer as regards the uninsured balancewhether the uninsured
balance comprises either type of lossthe Court of Appeals apparent view that the allocation of recoveries should prima facie
mirror the allocation of risk suggests that the pro rata allocative approach would be regarded as the default approach in all cases of
underinsurance.
Allocation in marine insurancethe decision in Napier v Hunter
27.116 A difficult question for the future is how far the laws default approach to the allocation of recoveries in marine
insuranceat least in cases of underinsurancemust now be modified in light of the House of Lords decision in Napier v Hunter.206
27.117 The hypothetical facts assumed for the purpose of the decision in Napier v Hunter were that a Lloyds names liabilities in
a particular year were underwritten by stop loss insurers under a policy with an excess of 25,000, and a limit of 100,000. The name
incurred net underwriting losses of 160,000, for which it received the maximum 100,000 sum payable under the policy.
Subsequently, the name recovered 130,000 from the managing agent whose wrongdoing had caused the losses. What was the extent
of stop loss insurers claim to recoupment, if any, against the assured in respect of that recovery?
27.118 At first instance,207 Saville J held that the assured was entitled to recoup all of his uninsured losses first, before the insurer
had a claim to recoupment.208 He took a robust approach, which he considered best accorded with the underlying policies of
subrogation. Subrogation, in his view, had two sides. The assured must not receive more than a full indemnity; however, he also
must not receive less.209 He noted that that would be the consequence of the top down or layered insurance analysis argued for by
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the insurers. In his view, the question was simply whether the recovery obtained by the assured together with the indemnity would
more than compensate the assured for the loss suffered. If it would, and the recovery was obtained after payment by the insurer, then
the insurer would be entitled to recoupment of the amount of the indemnity overpaid to that extent.210 The practical result of Saville
Js robust approach was that the assured was entitled to retain so much of the recovery as was required to compensate his uninsured
losses. On the hypothetical facts, having suffered a loss of 160,000, and recovered a total of 230,000comprising 100,000 from
the insurer and 130,000 from the wrong-doerthe assured had been overcompensated by 70,000. The insurers had therefore
overpaid 70,000 of the 100,000, and the assured had to repay to the insurer that amount.211 Put differently, the assured was entitled
to recoup all of his uninsured losses firstboth the first 25,000 excess and the 35,000 in excess of the 100,000 policy limit.
27.119 Saville Js approach was rejected by the Court of Appeal.212 All endorsed a top down approach, whereby the assured
F.D. Rose
would be permitted to recoup his uninsured losses in excess of the 100,000 policy limit first, but not those falling below the 25,000
policy excessthe first 25,000 being an amount which, vis--vis the insurer, the assured had agreed to bear.
27.120 The House of Lords upheld the Court of Appeals decision on that point. Lord Templeman, who gave the leading speech
on this point,213 considered that Saville Js approach was wrong because it enabled the assured to recoup himself, in priority to the
insurer, for a loss which he had agreed to bearthe loss corresponding to the amount of the excess. In agreement with the Court of
Appeal, Lord Templeman endorsed a top down approach and emphasised that an assured was not entitled to be indemnifiedin
priority to the insureragainst a loss which he had agreed to bear. On that basis, the name had to bear the losses to the extent of the
excess.214
27.121 In Lord Templemans view, the problem fell to be solved by assuming that there were three insurance policies.215 The first
policy provided for payment for the first 25,000 of any loss; the second policy provided for payment for the next 100,000 of any
loss; and the third policy provided for payment for any loss in excess of 125,000. On that assumption, when the name suffered
160,000 loss, the name would receive 25,000 under the first policy; 100,000 under the second; and 35,000 under the third. When
the name received 130,000 from the wrongdoer, the sums fell to be distributed between the insurers in reverse order. The third
insurer had first entitlement, on the basis that he only agreed to pay if the first two policies were insufficient to cover the losshe
could therefore claim recoupment of the full 35,000 paid out. The second insurer had next entitlement, on the basis that he only
agreed to pay if the first policy proved insufficient to cover the losshe could therefore recover 95,000, being what was left of the
recovery obtained by the assured. Whilst the second insurer was entitled to a further 5,000, there was nothing left to recoup him for
that sum. Equally, there was nothing left to recoup the first insurer.
27.122 Napier v Hunter did not in fact involve three insurance policies of the type envisaged. Under the stop loss policy, the
hypothetical name agreed to bear the first 25,000 of any loss (the amount of the excess) and any loss in excess of 125,000 (the
amount of the limit when added to the amount of the excess). Nevertheless, Lord Templeman considered that the name was not
entitled to be in a better position than if he had taken out the three insurance policies.216 The name acted as his own insurer for the
uninsured amountsthe first 25,000, and any loss in excess of 125,000. Lord Templeman concluded that the result would be that
the stop loss insurer would, like the second insurer in the example, be entitled to 95,000. The premises would be the same. The
assured could recoup his losses in excess of 125,000 first. However, the assured could only recoup the first 25,000 of his losses
after the insurer was recouped, because he had agreed that, as between himself and the insurer, that was a loss that he would bear. In
short, the recoveries were to be distributed from the top downthe names were entitled to be reimbursed first for their losses in
excess of the policy limit; the insurers were next entitled to be reimbursed from what remained of the amounts recovered; and only
thereafter were the names entitled to reimbursement of the amount of their loss below the excess.
27.123 Lord Templeman noted and rejected Saville Js contrary argument, which had been founded in particular on Brett LJs
statements in Castellain v Preston.217 Lord Templeman found the case unhelpful in deciding whether a party, such as the name, who
had promised his insurers to bear the first 25,000 of any loss, was entitled to be placed in the same position as an assured who made
no such promise. Brett LJ had not been concerned with competing claims to subrogation or with any problems arising from
under-insurance or partial insurance or layers of insurance.218 In his view, an assured is not entitled to be indemnified against a loss
which he has agreed to bear.219
Allocation in marine insurancethe position following Napier v Hunter
27.124 The top down approach endorsed in Napier v Hunter is substantially different from the approach conventionally taken in
marine insurance to under-insurance or partial insurance. Rather than allocating any recovery proportionately between assured and
insurer, the top down approach necessitates a distinction between types of uninsured loss. Recoveries are allocated: first, to the
assureds uninsured losses in excess of the policy limit; second, to the sums insured under the policy; and, finally, to the assureds
uninsured losses falling below a policy excess.
27.125 The difference between marine and non-marine insurance approaches to the allocation of recoveries in cases of
underinsurance was not explicitly recognised by the House of Lords in Napier v Hunter.220 It was, however, recently judicially
acknowledged in Kuwait Airways Corporation v Kuwait Insurance Co SAK,221 where the top down approach was applied in a case
of under-insurance on non-marine property. In that case, 15 planes and spares belonging to KAC had been seized by the Iraqi
government at the outbreak of hostilities. KAC was paid $300m by its insurers under a without prejudice settlement. Subsequently,
KAC had recovered a number of the planes and spare parts. A question arose as to how those recoveries should be allocated, on the
assumption that KACs entitlement under the policy was subject to a limit, and that KAC had suffered considerable uninsured losses.
Rix J considered that it was proper to adopt a top-down approach, rather than the proportionate sharing approach which was
adopted in cases of underinsurance in marine insurance caseswhich would have involved allocating the recoveries in proportion to
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the sums insured and uninsured. Any recoveries were to go to reduce KACs uninsured losses, in excess of the policy limit, first.
They would only be allocated to KACs insured losses as and when KACs losses were reduced to the level of the policy limit. Rix J
noted that Lord Templeman in Napier v Hunter appeared to have considered that the top-down approach would apply to
under-insurance or partial insurance or layers of insurance;222 but that, despite frequently cited dicta that the essential principles of
subrogation are common to marine and non-marine insurance, the position may well be different.223 He concluded that the top
down approach should be applied, either because it was the principle which most closely conforms to the underlying rationale of
subrogation or that any variation from that principle is confined to marine insurance.224
The impact of Napier v Hunter in marine insuranceuninsured losses in excess of a policy limit
F.D. Rose
27.126 The first question is how far the top down principle can be extended to marine insurance, so that the assured can recoup
his uninsured losses, in excess of the insured amount, before the insurer has any claim to recoupment. It is certainly not possible,
consistently with a well-established body of case law, to apply the top down principle to valued policies, under which the assured is
insured for the full agreed value, but where the assureds actual losses exceed the agreed measure of indemnity.225 But it also does not
seem possible, consistently with the position established by The Commonwealth,226 to adopt the top down principle in cases of
simple under- or partial insurance on a ship, cargo or freight. Arnould227 notes that it is difficult to see how the top down principle,
and the reasoning that led to it, can be applied to partial insurance cases of the type involved in The Commonwealth and in other
pre-1906 cases in which pro rata apportionment was also adopted for cases of partial insurance in relation to particular average losses
and sue and labour expenses. The Commonwealth may be the only direct authority228 on the allocation of recoveries for the purpose of
determining rights of subrogation or recoupment. Nevertheless, as Arnould notes, it seems inconceivable that the House of Lords
could have intended, by implication, to have swept away the principles applying to under- or partial insurance under marine insurance
policieswhich are of long standing, are reflected in the language of the 1906 Act,229 and apply broadly not only to the allocation of
recoveries obtained by the assured, but also to the adjustment of losses and expenses. The better view must be that, unless and until
explicitly reconsidered by an appropriate court, The Commonwealth remains authority for what it decides.230
27.127 If the principle of The Commonwealth is not affected, the question remains whether the top down principle ever applies
to marine insurance so as to permit the assured to recoup himself first for uninsured losses above the insured sum. Arnould rejects the
suggestion that The Commonwealth might be of general application, on the basis that the wide language of the judgments prevents
any suggestion that marine insurance is completely excluded from the scope of the principles stated by the House of Lords in Napier
v Hunter.231 Arnould instead prefers the view that, while the principle stated in The Commonwealth must stand for ordinary cases of
underinsurance or partial insurance on property, the top down rule should probably apply to marine policies written on a layered
basis. That would include marine liability policies covering liabilities not exceeding a stated limit,232 as well as marine property
policies written on a layered basis or containing a limit clause233 as opposed to wording typical of partial insurance.234
27.128 One possible answer to the conundrum, arguably implicit in Arnoulds approach, is that the laws allocative approach will
prima facie mirror the allocation of risk under the contract of insurance. That is certainly implicit in the House of Lords decision in
Napier v Hunter. It was on that basis, for example, that it was considered that an assured would not be entitled to recoupment for
uninsured losses falling below a policy excess in priority to the insureras between assured and insurer, the assured had agreed to
bear those losses. In marine insurance policies, the default allocation of risk between insurer and assured in cases of under-insurance
would seem to be that stated in the Marine Insurance Act 1906, section 81. The assured is treated as his own insurer as regards any
uninsured balance, and insurer and assured bear any loss proportionately to the insured and uninsured sums. If the allocation of
recoveries prima facie follows the allocation of risk, then the laws starting point would seem naturally to be the pro rata allocative
approach adopted in The Commonwealth. By the same token, if that prima facie allocation of risk is expressly displaced by clear
contrary provision in the contract, a different allocative approach would appear to apply.
The impact of Napier v Hunter in marine insuranceuninsured losses falling below a policy excess
27.129 The second question is whether the top down principle should also be extended to marine insurance, so that an insurer
can recoup the indemnity paid by him, before the assured can recoup himself for losses falling below a policy excess or equivalent.
Hull policies commonly contain deductible clauses.235 If a deductible could be regarded as a layer,236 analogous to the policy excess
in the policy in Napier v Hunter, then, in the absence of express provision, the assureds entitlement to benefit from recoveries
obtained in respect of the amount of any deductible would be postponed to that of the insurers. Whether that result would follow
might depend on whether the mere inclusion of a deductible could be regarded as impliedly displacing the default allocation of risk in
cases of underinsurance which is reflected in the Marine Insurance Act 1906, section 81. In practice, however, the issue may not often
arise. Hull policy standard forms which make express provision for deductibles also make express provision for the allocation of
recoveries. Earlier standard forms237 adopted the top down approach suggested by Napier v Hunter. In contrastand consistently
with what Arnould suggested was market practice in England and the United States238the most recent International Hull Clauses
adopt a pro rata approach.239
Allocation in accordance with the parties agreement
27.130 Parties to a contract of insurance can clearly make contractual provision for the allocation of recoveries between insurer
and assuredthereby displacing any principles of allocation which would otherwise apply.
Express provision for the allocation of recoveries
27.131 Examples of such provisions can be found in marine insurance standard formsand, in particular, in hull insurance
standard forms.
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The Institute Time Clauses (Hulls)top down allocation where there is a deductible
27.132 The Institute Time Clauses (Hulls), clause 12.3, makes express provision for the allocation of recoveries where a claim is
subject to a deductible:240
Excluding any interest comprised therein, recoveries against any claim which is subject to the above deductible shall be credited to the Underwriters
in full to the extent of the sum by which the aggregate of the claim unreduced by any recoveries exceeds the above deductible.
The effect of that clause appears to be that the insurer can claim recoupment from any recovery first, before the assured can recoup
F.D. Rose
himself for the losses falling below the amount of the deductible. That is consistent with the approach adopted by the House of Lords
in Napier v Hunter,241 to an excess clause in a non-marine liability insurance policy.242
The International Hull Clausesgeneral pro rata allocation between insured and uninsured losses
27.133 The International Hull Clauses adopt a different approach.243 Subject to a deduction for costs incurred in obtaining any
recovery, the Clauses adopt a general principle of pro rata allocation between insured and all uninsured losses. A recovery will be
allocated between insurer and assured in the same ratio as the insured losses and all uninsured losses bear to each other. Uninsured
losses for this purpose include both the amount of any deductible and amounts in excess of any policy limit:
49.4 In the event of recoveries from third parties in respect of claims which have been paid in whole or in part under this
insurance, such recoveries shall be distributed between the Underwriters and the Assured as follows:
49.4.1 the reasonable costs and expenses incurred in making such recoveries from the third party shall be deducted first and returned to the paying
party
49.4.2 the balance shall be apportioned between the Underwriters and the Assured in the same proportion that the insured losses and uninsured losses
bear to the total of the insured and uninsured losses. For the purposes of Clause 49.4.2, uninsured losses shall mean loss of or damage to the
subject-matter insured and any liability or expense which would have been recoverable under this insurance, but for the application of deductible(s)
under Clause 15 and the limits of this insurance.
27.134 The effect of that clause is to treat as a general principle the principle of pro rata allocation established for cases of
underinsurance under marine policies by The Commonwealth.244 All uninsured losses are treated in the same way, whether they fall
below or above a policy limit. It therefore reflects a very different allocative approach to the top down approach which may be the
starting point in non-marine insurance following Napier v Hunter.245
Implied provision for the allocation of recoveries?
27.135 Even in the absence of express provision in the contract of insurance, it may be that the allocation of recoveries between
insurer and assured can be impliedly determined. It is arguably implicit in the House of Lords decision in Napier v Hunter that the
allocation of recoveries prima facie mirrors the allocation of risk under the contract of insurance.246 In marine insurance policies, as
noted above, the prima facie allocation of risk between insurer and assured in cases of underinsurance would seem to be that stated in
the Marine Insurance Act 1906, section 81. The assured is treated as his own insurer as regards any uninsured balance, and the insurer
and assured bear any loss in the proportion that the insured and uninsured amounts bear to each other. If the allocation of recoveries
prima facie follows the allocation of risk, then the laws starting-point would seem naturally to be the pro rata allocative approach
adopted in The Commonwealth. By the same token, if that prima facie allocation of risk is expressly displaced by clear contrary
provision in the contract, a different allocative approach would appear to apply.
The quantification of the insurers entitlementthe allocation of recoveries between insurers
27.136 A further question, not touched in the cases considered so far, concerns the extent of an insurers claim, in respect of
recoveries obtained by an assured, if there are multiple insurers. Again, in principle the laws solution should depend on the rules of
allocation; they are not often discussed.
Partial insurance by multiple insurers
27.137 The marine cases, involving marine property insurance, suggest a basic principle of pro rata allocation according to the
amounts insured. The leading cases concerning full insurance under a valued policy all appear to have involved a single
policyalbeit generally a policy subscribed to by multiple underwriters.247 In some cases, the claim actually advanced was made by
one of the underwriters, either to resist liability to pay his share,248 or to claim recoupment in respect of a proportionate part of the
recoveries obtained by the assured, proportionate to the part of the loss which he had underwritten.249 In each case, the court
considered the appropriate allocation of the recoveries between the assured and the underwriters collectively. Nevertheless, it seems
reasonably clearand is implicit in the claims made by the individual underwritersthat the recoveries allocated to the underwriters
collectively would be allocated between them individually in proportion to the parts of the loss which they had individually
under-written.
27.138 The allocation of recoveries between insurers under multiple policies was briefly addressed, in argument, in The
Commonwealth.250 In that case, the Court of Appeal supported its view of the appropriate allocation of recoveries between insurer and
assured where a ship was underinsured under a valued policy by reference to the appropriate allocation of recoveries between insurers
under two valued policies. It imagined a situation in which the ship, valued at 1,350, was insured for 1,000 under one valued
policy, and for 350 under another valued policy at the same valuation. It was thought obvious that, in that case, any recoveries
would be allocated between the two insurers in proportion to their respective interests in the subject matter.251 It was considered that
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an assured who had underinsured, and was to be treated as his own insurer as regards the uninsured balance, was in the same
position.252
Layered insurance with multiple insurers
27.139 Recent non-marine cases suggest that the same approach might not apply where multiple insurers effectively insure
different layers of the same risk. Napier v Hunter253 did not in fact concern multiple insurers of different layers of the same risk; the
stop loss insurers provided cover for the names underwriting losses, in excess of a specified excess and up to a specified policy limit.
Nevertheless, the reasoning for the insurers, which was apparently accepted by the Court of Appeal and in the House of Lords, relied
heavily on the analogy of layers of insurance. It was contemplated that an insurer might insure under a policy with a limit; losses over
F.D. Rose
that limit might be uninsured or covered by another layer of insurance with a different insurer. The insurers argued that, in either case,
the recoveries should be allocated from the top downfirst to the uninsured losses in excess of the policy limit, or to the insurer of
the top slice.254
27.140 A contrasting approach was taken in the marine insurance case of Boag v Standard Marine Insurance Co,255 which
involved primary and increased value policies on cargo. In that case, a valued policy was taken out for the full agreed value,
andwhen the value rosea further valued policy was taken out for the increased value. Boag appears to decide that, in such a case,
the original value insurer has prior claim to recoupment in respect of any recoveries obtained by the assured. The implication is that
the increased value insurer would only be entitled to recoupment to the extent that the assureds recovery exceeded the amount of the
indemnity paid by the primary insurer.
27.141 The approach adopted in Boag as regards primary and increased value policies is the reverse of that suggested by the
insurance layers analysis employed in Napier v Hunter.256 The increased value insurer, who might arguably be considered analogous
to the insurer of the losses over and above a policy limit, has second claim to recoupment, rather than first claim to
recoupmenteven though on one view the increased value insurer is in an analogous position, insofar as the increased value insurer
agrees to indemnify the insureds loss over and above the original value. The analogy may well be flawed. But in any event, the result
of Boag is now effectively displaced in practice where cargo policies incorporate the Increased Value Clause of the Institute Cargo
Clauses, clause 14.257 Primary and increased value insurers share proportionately in any recoveries obtained by the assured.
IV THE INSURERS CLAIM TO RECOUPMENT: THE INSURERS EQUITABLE LIEN
The nature and basis of the insurers lien
27.142 Before the decision of the House of Lords in Napier v Hunter,258 it was not wholly clear whether an insurer who had
indemnified his assured had any proprietary rights, and what the nature of any rights would be. That issue was further clouded by a
controversy about the legal basis of subrogation. The main possibilities ordinarily suggested were that subrogation rested on common
law principles and depended on terms implied into the contract of insurance, or that it was an equitable doctrine founded on general
principles of equity. The suggestion that subrogation was essentially a common law doctrine, based on implied terms, rested on dicta
of Diplock J.259 One perceived corollary was that the insurer had no proprietary rights, but only a personal claim to recoupment
against the assured via the common laws action for money had and received. Equitys intervention was limited to enabling the
insurer to sue in the name of the assured. That view can no longer be maintained. Whether or not an insurers rights formally rest on
terms implied in law into the contract of insurance,260 equity will intervene so far to protect those rights as to recognise that the
insurer has equitable proprietary rights inat leastrecoveries obtained by the assured.261
27.143 The key holding in Napier v Hunter was, in short, that an insurer does not just have a personal claim to recoupment against
the assured of the amount of the overpaid indemnity, where the assured obtains recoveries which diminish losses for which he is
indemnified by the insurer. The insurer can also assert an equitable lien or charge over the recoveries, as security for the insurers
personal claim to recoupment which arises as a consequence of those recoveries. The House of Lords specifically rejected the
suggestion, consistent with the language in earlier cases, that the insurers proprietary right might be an interest under a trust.262 Lord
Goff noted that an equitable lien was the more appropriate form of proprietary right where, as in this context, its function is to
protect the interest of the insurer in an asset only to the extent that its retention by the assured will have the effect that he is more than
indemnified under the policy of insurance.263
27.144 The conclusion in Napier v Hunter that the insurer had such proprietary security, and not merely a personal claim to
recoupment against the assured, substantially rested on earlier authorities which recognised that an insurer had some form of
equitable proprietary right.264 However, it was also defended on the practical grounds that it was desirable to afford security for the
insurers claim to recoupment in order to ensure or at least facilitate such recoupment,265 and on the basis of the well-established
principles of equity according to which equitable interests might arise from specifically enforceable obligations to transfer or hold
property for another.266
27.145 That conclusion is far from uncontroversial.267 It has been criticised on the basis that the proprietary claim recognised
cannot be justified on the basis of orthodox grounds for recognising a lienthat the claim had a proprietary base,268 or that the
insurer had not voluntarily assumed the risk of his assureds bankruptcy.269 It has been criticised on the basis of the anomaly that
would arise if the existence of a lien depended on whether an insurer happened to indemnify the assured before (when the lien would
exist) or after (when no lien would exist) the third-party recovery was obtained.270 And it has been criticised on the basis that, whilst
there were good practical reasons for allowing such security on the facts of Napier v Hunter, the arguments for affording insurers
priority over an assureds trustee in bankruptcy or liquidator are much weaker.271 Notwithstanding those criticisms, it must be
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accepted that, for the time being at least, Napier v Hunter establishes a general proposition which must be considered to represent the
law.272
The subject matter of the insurers equitable lien or charge
27.146 A prerequisite for the insurers lien is an identifiable subject matter. What does that entail?
Assured recovers from third party after indemnification by insurera lien over the third-party recoveries
27.147 The authorities considering the newly-recognised lien273 have been cases where, after full indemnification by his insurer,
the assured had recovered from a third party, whether pursuant to a settlement or in satisfaction of a judgment obtained against the
third party. In each case, the lien which arose was considered to exist over the third-party recovery rather than the sums previously
F.D. Rose
received from the insurer. Those cases therefore clearly suggest that the lien exists over recoveries obtained by the assured after full
indemnification under the contract by the insurer, pursuant to rights to which the insurer was entitled to be subrogated.
27.148 If that is right, it should not matter whether the sums were actually recovered pursuant to proceedings by the assured itself,
or by proceedings by the insurer in the name of the assured. In either case, the recoveries would be impressed with a lien for the
insurer. It may also not matter that the recovery in fact obtained by the assured was not strictly obtained by the exercise of a right to
which the insurer was subrogatedin particular, because it was a voluntary payment by a third party.274 The sole qualification is that
the recovery is regarded as diminishing the losses for which the insurer had previously indemnified the assured.
Assured recovers from third party before indemnification by insurera lien over the recovery from the insurer?
27.149 It is far less clear whether an insurer acquires any equitable proprietary right where the assured recovered from a third
party before he was fully indemnified by his insurer. In such a case, the insurers personal claim to recoupment is triggered by the
subsequent payment by the insurer, to the extent that the earlier third-party recovery reduced the losses for which the assured was
subsequently indemnified. Ex hypothesi, no lien could arise, securing the insurers claim to recoupment, until that later point. There is
no authority directly holding that a lien would arise in this situation. Indeed, there are dicta in Napier v Hunter suggesting that it
would not. Lord Browne-Wilkinson considered that, if the insurer indemnified the assured after the assured had obtained recoveries
from the third party which diminished his loss, there would be no fund which could be the subject of a lien or charge.275 He explicitly
conceded that the rights of insurer and assured in this respect did therefore depend on the order of the receipts by the assured from the
insurer and any third party.276
27.150 Assuming that it is justifiable to afford an insurer security for his claim to recoupment, it seems unfortunate that the
existence of such security should depend upon the order of the recoveries from the insurer and any third party. Indeed, some critics of
Napier v Hunter criticise the decision precisely on the assumption that it produces that anomaly.277 If it is considered appropriate that
an insurer should have security for his claim to recoupment, where the assured is mistakenly indemnified by his insurer after he has
recovered from a third party, one solution may be to recognise that the lien arises in such cases over a different subject matterthe
identifiable fund of money received from the insurer.
Assured has not yet recoveredlien over the cause of action against third parties?
27.151 In Napier v Hunter, their Lordships left open whether the insurers lien might arise, on the insurers fully indemnifying his
assured, over the assureds right of action against a third party. Lord Templeman expressed the view that it would, but he accepted
that that view might require reconsideration in light of further research if the point became material in a subsequent case.278 Lord
Goff,279 and a fortiori, Lord Browne-Wilkinson,280 had greater reservationsbut neither wished to express a concluded view on the
point.
27.152 It is unclear whether English law will in future develop in the direction of recognising that an insurer has an equitable lien
over an assureds right of action. Even if the practical arguments for affording an insurer security over any recoveries obtained by an
assured did prima facie apply to justify the recognition of security over an assureds right of action, that development would represent
a major extension to a proprietary claim whichcurrently recognised in relation to actual recoveries by the assuredis already
controversial. It has been argued that the insurer is sufficiently protected by his entitlement to sue the third party in his own name, if
the assured refuses to, subject to the requirement of joining the assured as a second defendant.281 Whether or not that is right, the
recognition that the insurer has an equitable proprietary right in the assureds right of action involves a shift in the laws conception
of an insurers right of subrogationcurrently best conceived as an essentially procedural, personal right to require the assured to
pursue his cause of action against the third party, or at least to permit his insurer to do so in his name.282 Such a shift might present as
yet unexplored complications for the rights and obligations of insurer and assured, recognised by established authorities, in relation to
the conduct and disposal of litigation.283
Limits of the insurers equitable lien or charge The need for an identifiable subject matter
27.153 A necessary prerequisite for the insurers lien is an identifiable subject matter. Hitherto, the lien has only been recognised
in relation to third-party recoveries obtained after the insurer has indemnified the assured.284 In Napier v Hunter,285 Lord Templeman
suggested that the lien could be found so long as the damages form an identifiable separate fundsuggesting that the insurers
would be reduced to their personal claim to recoupment against the assureds, if the solicitors holding the funds had distributed the
damages to the assureds before the insurers had issued proceedings or notified the solicitors of their charge. That view seems unduly
narrow, however. The better view may be that the lien is enforceable against the fund of monies received or its traceable proceeds,
held by the assured or another, provided that the fund has not been acquired by a bona fide purchaser for value.286
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The extent of the lien

27.154 The lien secures the insurers personal claim to recoupment only. Its subject matter appears to be the recoveries which
trigger the insurers claim to recoupment; and the amount secured is limited to the amount of the insurers claim to recoupment in
respect of those recoveries.
The fragility of the lien, as a proprietary interest dependent on equitable intervention?
27.155 In a recent case,287 assureds argued that, as the insurers equitable lien depends on equitable intervention, an insurer is
disentitled from relying on his lien where he has been guilty of inequitable conduct. That argument was rejected on several
grounds. First, the insurer had a proprietary interest in the monies, which could not be undermined by his inequitable conduct.
F.D. Rose
Second, the assureds had sufficient protection against misconduct by the insurer by virtue of an implied term in the contract of
insurance that the insurer would not exercise his rights of subrogation to the assureds prejudice. If breach of the term caused the
assureds loss, the assureds would be able to set off the damages against the insurers claim against them.288 Third, even if it was open
to a court to refuse the insurer relief on equitable grounds, the insurers conduct was insufficiently serious on the facts to require that
consequence.
Legal consequences of the insurers equitable lien or charge
27.156 Whilst it subsists, the equitable lien or charge provides security for the insurer in the event of the assureds subsequent
bankruptcy or insolvency.289 After the assured has received the proceeds, a court could presumably grant an injunction, restraining the
assured from dealing with the proceeds subject to the lien as part of his normal cash flow without first satisfying the insurers claim to
recoupment. Even before the assured has actually received the proceeds, courts have been willing to protect the insurers entitlement
by an injunction, for example restraining the assured from receiving the proceeds without provision first being made by the assured
for the recoupment of the insurer.290 In Napier v Hunter itself, where the damages recovered were being held by the assureds
solicitors, Lord Templeman expressed the view that an injunction could be granted restraining the solicitors from paying, and the
assureds from receiving, any part of the damages fund without first providing or paying out of the damages payable to each assured,
the amounts due from that assured to the insurers by way of recoupment.291
Costs
27.157 In Kamal XXVI (Owners of) v Ariela (Owners of),292 a claim was fraudulently brought against the assured and defended by
their insurers, who claimed subrogation rights. It was held that there was a discretion to order the insurers to pay the assureds costs
where: (1) the insurers determined that the claim would be fought; (2) the insurers funded the defence of the claims; (3) the insurers
had the conduct of the litigation; the insurers fought the claim exclusively or predominantly to defend their own interests; and (5) the
defence failed in its entirety.
1 1.For discussions of the nature and basis of subrogation more generally, see eg S Derham, Subrogation in Insurance Law (Law Book Co Ltd, Sydney, 1985)
(Derham); C Mitchell and S Watterson, Subrogation Law and Practice (OUP, Oxford, 2007) (Mitchell &Watterson); Goff & Jones.
2 2.[1922] 2 KB 249.
3 3.MIA 1906, s.4.
4 4.[1896] AC 250 (PC). The insurers had in fact taken an express assignment of the insureds rights, and were therefore bringing the action in their own
name.
5 5.Cf post, 27.5827.73, discussing the assureds duty not to prejudice the insurers right of subrogation, which may arise on formation of the contract, and
not merely on paymentcf Boag v Standard Marine Ins Co Ltd [1936] 2 KB 121; [1937] 2 KB 113 (CA). Cf post, 27.8727.141, discussing the distinct
question of the extent of the insurers claim to recoupment against his assured. Cf post, 27.22and 27.39, noting that express contractual provision may afford
the insurer comparable rights, whether or not the assured has been indemnified under the policy.
6 6.So in Page v Scottish Ins Corp Ltd (1929) 33 Ll LR 134 (CA), where a car accident caused by the negligence of a driver to whom the insured owner had
lent the car gave rise to two claims under the policyone in respect of the owners liability to a third party in respect of the collision, and another in respect of
damage to the car. It would not be sufficient, to entitle the insurer to be subrogated to the insured owners rights against the driver, for the insurer to meet the
claim under the policy in respect of the damage to the car.
7 7.See Page v Scottish Ins Corp Ltd (1929) 33 Ll LR 134 (CA) (Scrutton LJ), leaving the point open.
8 8.Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483.
9 9.[1993] AC 713, discussed post, 27.11627.129.
10 10.MIA 1906, s.27(2).
11 11.See esp. North of England Iron Steamship Insurance Association v Armstrong (1870) LR 5 QB 244.
12 12.See, for recognition of this; Derham, 5152; Arnould, 31.31.
13 13.See Derham, 5152, noting The Commonwealth [1907] P 216 (CA), discussed post, 27.11327.115, where the Court of Appeal indicated that they
regarded the case in the same way as if the assured had effected full insurance on the ship with different insurers.
14 14.Cf Arnould, 31.31, recognising the problem presented by the decision in Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483 (CA).
15 15.See Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483 (CA), where the underinsured owner of property damaged by fire was allowed
to conduct proceedings against the third party responsible for the fire, without interference from the insurer, on an undertaking being given to sue for all of the
damage. It was also emphasised in that case that, in those proceedings, the assured would be liable for anything done by him in violation of any equitable duty to
the insurers; as to the duties resting on the assured, see post, 27.5827.73.
16 16.IHC 03, cl.49.1.4.
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17 17.For discussion of how far payment can take a form other than the payment of money to the assured, such as repair or reinstatement of the damaged
property itself in the case of insurance on property, see Derham, 5768. See also now Brown v Albany Construction Co [1995] NPC 100 (CA) (non-marine).
18 18.Cf Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 (CA); Arnould, 31.14. Quaere if a time-limit applicable to the claim has expired before
ratification: Arnould, 31.14.
19 19.Cf Government of Pakistan v Ionian Trader [1961] AMC 266; Arnould, 13.22, fn.87; Page v Scottish Ins Corp Ltd (1929) 33 Ll LR 134 (CA).
20 20.See Page v Scottish Ins Corp (1929) 33 Ll LR 134 (CA) (motor vehicle policy).
21 21.Cf Arnould, 16th edn, 1304: MIA 1906, s.79(1) admits of the construction that the insurer is subrogated to such rights for the purpose for which
subrogation is allowed by the principles of English law, and no furtheri.e. for the purpose of diminishing the insurers loss. See now Arnould, 17th edn,
F.D. Rose
31.51.
22 22.See post, 27.7727.78. For confirmation of this, see eg The Auditor (1924) 18 Ll LR 464. A different illustration of the same point may be provided
by the facts of Simpson v Thomson (1877) 3 App Cas 279. Where a vessel is lost in a collision with another vessel owned by the same person, the vessel owner
could have no cause of action in tort against himself to which the first vessels insurer could be subrogated.
23 23.In such a case, the insurer might be entitled to be subrogated to the assureds rights under the settlement. See further post, 27.6427.67.
24 24.Cf Arnould, 16th edn, 1310, fn.48, where this point is obscured by the failure to distinguish the right of subrogation, narrowly conceived, and the
recoveries in respect of which an insurer may claim recoupment.
25 25.See generally post, Part III, 27.8627.141.
26 26.See further post, 27.5827.73.
27 27.MIA 1906, s.79(1), (2).
28 28.See esp. the opinions in the classic case of Castellain v Preston (1883) 11 QBD 380 (CA).
29 29.See esp. Castellain v Preston (1883) 11 QBD 380 (CA). Cf similarly e.g. the recent statement in England v Guardian Insurance Ltd [2000] Lloyds
Rep IR 404, [10], that, [o]nce the insured has been indemnified, an insurer is entitled to receive the benefit of all rights and remedies that the insured has
against third parties which, if satisfied, would extinguish or diminish the loss sustained.
30 30.Cf H Cousins & Co Ltd v D&C Carriers Ltd [1971] 2 QB 230 (CA), indicating that the insurers rights extend to claims, such as claims to interest,
which are ancillary to the assureds right of action against a third-party wrongdoer.
31 31.See, eg, the voluntary payment cases noted post (27.93, fn.174) of Merrett v Capitol Indemnity Corp [1991] 1 Lloyds Rep 169 and Colonia
Versicherung AG v Amoco Oil Co [1995] 1 Lloyds Rep 570; affd (CA).
32 32.See, eg, Assicurazioni Generali De Trieste v Empress Assurance Corp Ltd [1907] 2 KB 814, which indicates that a reinsurer would be entitled to the
benefit of the fruits of the reassureds cause of action against the original assured for damages for the fraudulent misrepresentation which induced the formation
of and/or payment under the original policy. Cf Sea Insurance Co v Hadden (1884) 13 QBD 706 (CA), which directly concerned the extent of an insurers
entitlement following an abandonment by the assured; it is commonly cited for the proposition that the insurer of the hull of a vessel damaged in a collision
would have no entitlement in respect of such part of any compensation paid by the owner of the vessel as was attributable to loss of freight, rather than loss of
the insured subject matterthe shipitself. Cf also Young v Merchant Marine Insurance Co Ltd (1932) 37 Com Cas 250; [1932] 2 KB 705 (CA). See also the
voluntary payment cases, noted post, (27.93, fn.174), of Burnand v Rodocanachi (1882) 7 App Cas 333 (HL) and Stearns v Village Main Reef Gold Mining
Co (1905) 10 Com Cas 89 (CA).
33 33.See further post, 27.92.
34 34.Cf, eg, King v Victoria Insurance Co [1896] AC 250 (PC).
35 35.Cf Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 (CA).
36 36.See Government of Pakistan v Ionian Trader [1961] AMC 266; Page v Scottish Ins Corp Ltd (1929) 33 Ll LR 134 (CA).
37 37.See Page v Scottish Ins Corp Ltd (1928) 33 Ll LR 134 (CA).
38 38.Esso Petroleum Ltd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643, 663 (Lord Goff).
39 39.Cf post, 27.3427.36, 27.68.
40 40.ICC, cl.16.2.
41 41.Cf Netherlands Ins Co Est 1845 Ltd v Karl Ljungberg & Co AB (The Mammoth Pine) [1986] 2 Lloyds Rep 19 (PC), holding that a correlative
reimbursement obligation should be implied into a policy which imposed a similar duty on the assured but omitted an express reimbursement obligation.
42 42.Noble Resources Ltd & Unirise Development Ltd v Greenwood (The Vasso) [1993] 2 Lloyds Rep 309.
43 43.Cf MacGillivray, 22.049, where the measure of liability is differently, but perhaps inaccurately described as the sum which would have been
recoverable from the third party.
44 44.IHC 03, cl.49.
45 45.IHC 03, cl.49.2; the key phrase, in the same proportion as the insured losses bear to the total of the insured and uninsured losses is defined by cl.49.4:
uninsured losses means loss of or damage to the subject-matter insured and any liability or expense which would have been recoverable under this insurance,
but for the application of deductible(s) under Clause 15 and the limits of this insurance.
46 46.IHC 03, cl.49.3.
47 47.See post, 27.1827.22.
48 48.Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483 (CA); similarly, Page v Scottish Ins Corp Ltd (1929) 33 Ll LR 134 (CA) (Scrutton
LJ).
49 49.Morley v Moore [1936] 2 KB 359 (CA); cf Hobbs v Marlowe [1978] AC 16 (HL), where the point was left open. See MacGillivray, 22.041.
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50 50.Morley v Moore [1936] 2 KB 359 (CA), applied in Bourne v Stanbridge [1965] 1 WLR 189 (CA); see MacGillivray, 22.048.
51 51.See post, 27.8727.156.
52 52.See post, 27.5827.73.
53 53.Cf Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483 (CA).
54 54.post, 27.5827.71.
55 55.IHC 03, cl.49.1.4.
56 56.See Wilson v Raffalovich (1881) 7 QBD 553 (CA).
F.D. Rose
57 57.See MacGillivray, 22.044.

58 58.See Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330, 341.
59 59.See post, 27.8727.141.
60 60.See post, 27.14227.156.
61 61.See post, 27.156.
62 62.See post, 27.5427.57.
63 63.See post, 27.4427.53.
64 64.See H Cousins & Co Ltd v D&C Carriers Ltd [1971] 2 QB 230.
65 65.See similarly, Arnould, 31.3931.40.
66 66.See post, 27.54.
67 67.Cf Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330, 341. See also Netherlands Insurance Co v Karl Ljungberg & Co AB (The
Mammoth Pine) [1986] 2 Lloyds Rep 19 (PC) (Lord Goff).
68 68.Express contractual provision may be made for such recoupment: see IHC 03, cl.49.4, noted post, 27.53.
69 69.See MacGillivray, 22.066.
70 70.See MacGillivray, 22.066. Similarly, Clarke, 316B3. See also post, 27.157.
71 71.Cf MacGillivray, 22.06222.063, for discussion of the position of an assured who is fully indemnified by his insurer, but nevertheless exceptionally
insists on bringing proceedings.
72 72.See ante, 27.1827.22.
73 73.See Assicurazioni Generali De Trieste v Empress Ass Corp Ltd [1907] 2 KB 814. Quaere whether the deduction can only be made for irrecoverable
costs incurred after the assured was indemnified: cf England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404 (Judge Thornton QC), 423. See further post,
27.9927.100.
74 74.See, eg, England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404 (Judge Thornton QC) 423. Similarly, OMay, 495.
75 75.See OMay, 495, where this is expressly recognised.
76 76.See Duus Brown & Co v Binning (1906) 11 Com Cas 190; MacGillivray, 22.064; Clarke, 316B3.
77 77.See ante, 27.3427.36, noting ICC, cl. 16.2, and IHC 03, cl.49.
78 78.See post, 27.5127.53.
79 79.Netherlands Insurance Co v Karl Ljungberg & Co AB (The Mammoth Pine) [1986] 2 Lloyds Rep 19 (PC). Cf, however, Barnett v National Insurance
Co of New Zealand [1965] NZLR 874 (NZ CA). Netherlands v Ljungberg (The Mammoth Pine) concerned the old form of the clause, which included no
express provision for reimbursement. See further ante, 27.35.
80 80.ICC, cl.16. See ante, 20.30.
81 81.ICC, cl.16.
82 82.IHC 03, cl.49; see ante, 20.31and post, 26.4926.53and 27.36.
83 83.IHC 03, cl.49.1.2.
84 84.IHC 03, cl.49.1.4.
85 85.IHC 03, cl 49.2; the key phrase, in the same proportion as the insured losses bear to the total of the insured and uninsured losses is defined by cl.49.4:
uninsured losses means loss of or damage to the subject-matter insured and any liability or expense which would have been recoverable under this insurance,
but for the application of deductible(s) under Clause 15 and the limits of this insurance.
86 86.IHC 03, cl.49.3.
87 87.IHC 03, cl.49.4.
88 88.[1971] 2 QB 447 (CA), distinguishing the earlier decision of the Court of Appeal in Harbutts Plasticine Ltd v Wayne Tank & Pump Co [1970] 1 QB
447 (CA).
89 89.[1971] 2 QB 447 (CA). See ITCH 83, cl.12.4; similarly ITCH 95, cl.12.4 and IVCH 95, cl.10.4.
90 90.IHC 03, cl.49.4.2; uninsured losses means loss of or damage to the subject-matter insured and any liability or expense which would have been
recoverable under this insurance, but for the application of deductible(s) under Clause 15 and the limits of this insurance.
91 91.Cf ante, 27.54.
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92 92.[1907] P 216 (CA), discussed post, 27.11327.115.

93 93.See post, 27.114.
94 94.[1907] P 216, 219.
95 95.[1907] P 216, 223224.
96 96.Statements such as those found in Phoenix Assurance Co v Spooner [1905] 2 KB 753, that an assured can never affect an insurers rights of
subrogation, seem unduly strong; they clearly can be affected by an assureds action or inaction. The truth may be that, where they are prejudicially affected, the
assured may incur a corresponding liability to the insurer: see post, 27.6027.63.
97 97.Cf post, 27.6427.73.
F.D. Rose
98 98.Cf the approach of Clarke, 316C1, which appears to reflect that assumption.
99 99.Cf the difficult discussion in Mitchell & Watterson, 10.15710.165.
100 100.Cf MacGillivray, 22.05222.057, where the basis of the duty is not clearly articulated. For recent discussion of the implied term analysis, see
England v Guardian Ins Ltd [2000] Lloyds Rep IR 404.
101 101.See MacGillivray, 22.053, suggesting that express provision for repudiation by the insurer would be needed. Cf Arnould, 31.34, fn.136, rejecting
the analogy with the release of a surety by virtue of dealings between creditor and debtor, and suggesting that no case decides that dealings by an assured with a
third party can do more than release the underwriter to the extent that he has actually been prejudiced. Cf Clarke, 316C1.
102 102.[1896] 2 QB 377; [1897] 1 QB 226 (CA).
103 103.[1905] 2 KB 753.
104 For example, the assureds right against the third party which was prejudiced by the assureds action or inaction might be expected to yield less than the
sum sufficient fully to recoup the insurer for the indemnity paid to the assured; an action which the insurer might have brought against the third party would not
be cost-free; and the assured might have obtained some recovery from the third party, in respect of which the insurer would have a claim to recoupment.
105 105.West of England Fire Insurance Co v Isaacs [1896] 2 QB 377; [1897] 1 QB 226 (CA); Phoenix Assurance Co v Spooner [1905] 2 KB 753. In neither
case was the quantum of the award, as opposed to its availability, clearly disputed.
106 106.An alternative explanation for the measure would be that the assureds breach entitles the insurer to avoid the contract ab initiothereby enabling
the insurer to claim back the amount of the indemnity paid from the assured; it could sometimes be explained, alternatively, as a restitutionary award measured
by the enrichment unjustly or wrongfully obtained by the assured at the expense of the insurer. West of England Fire Ins Co v Isaacs [1896] 2 QB 377; [1897] 1
QB 226 (CA) contains hints of such reasoning, although the first instance judge at least preferred a loss-based analysis.
107 107.See eg West of England Fire Insurance Co v Isaacs [1896] 2 QB 377; [1897] 1 QB 226 (CA). Cf Taylor v O Wray & Co Ltd [1971] 1 Lloyds Rep
497 (CA), where the settlement of an action brought by an assured in respect of its uninsured losses, confined to the assureds uninsured losses and expressed to
be without prejudice to its claims for insured losses, did not preclude a subsequent action by the insurer in the name of the assured for insured losses. Cf,
however, Buckland v Palmer [1984] 1 WLR 109 (CA); Hayler v Chapman [1989] 1 Lloyds Rep 490 (CA).
108 108.See the motor insurance cases of Buckland v Palmer [1984] 1 WLR 109 (CA) and Hayler v Chapman [1989] 1 Lloyds Rep 490 (CA). Cf Taylor v O
Wray & Co Ltd [1971] 1 Lloyds Rep 497 (CA).
109 109.See Clarke, 316C2, taking the position that a bilateral settlement, made bona fide, is not a breach of the contract of insurance.
110 110.See esp. Arnould, 31.37 and fn.152; cf further Clarke 316C1. Cf also Haigh v Lawford (1964) 114 NLJ 208 (County Court), where it suggested
that insurers who have made payment under a policy are never bound by a settlement made by the assured with a third party if the third party has notice of the
payment before concluding the transaction. The decision appeared to rely on the unsustainable assumption that, on paying the assured, the insurers obtained an
equitable assignment of the assureds right of action against the third party: MacGillivray, 22.055.
111 111.See the description in Arnould, 31.37 and fn.151.
112 112.Quaere what consequences would follow, if English law accepted that an insurer has an equitable lien over the assureds cause of action against a
third party, where a third party settled with an assured on terms prejudicial to the insurers, knowing of the insurers payment and/or of the possibility of
impairing the insurers rights of subrogation.
113 113.See Arnould, 31.35; MacGillivray, 22.051, contemplating the implication of a duty which might involve no more than protecting the claim
against any relevant time bar, and then inviting the insurer to make payment and take over the conduct of the action, but suggesting that the absence of such an
implication does not cause serious difficulties in many cases. Cf Clarke, 31.6A, thinking that no such implication is required to give business efficacy to a
contract of insurance, as an insurer is adequately protected by the notice clauses normally included which require notice of any claim to be given within a
shorter period than the relevant limitation period.
114 114.ICC, cl.16.2; IHC 03, cl. 49.1. See ante, 27.36.
115 115.See eg The Auditor [1924] 18 Ll Rep 464; and see post, 27.7727.78.
116 116.Tate & Sons v Hyslop (1885) 15 QBD 368 (CA).
117 117.That was the case in Canadian Transport Co Ltd v Court Line Ltd [1940] AC 934, where Lord Wright suggested that liability might be incurred. Cf
Bennett, 1st edn (1996), 407, suggesting that, if English law recognised a general post-formation duty of utmost good faith, breach of the assureds duty to
secure subrogation rights in contracts concluded after formation of the insurance could fall within the scope of that duty, and permit the insurer retrospectively
to avoid the contract.
118 118.Cf Boag v Standard Marine Insurance Co [1936] 2 KB 121; [1937] 2 KB 113 (CA), noted post, 27.73and 27.14027.141.
119 119.See Canadian Transport Co Ltd v Court Line Ltd [1940] AC 934, 945 (Lord Wright), citing West of England Fire Insurance Co v Isaacs [1897] 1
QB 226 (CA).
120 120.The contract under discussion in Canadian Transport Co Ltd v Court Line Ltd [1940] AC 934 post-dated the contract of insurance.
121 121.[1940] AC 934. The distinction emerges particularly strongly from the opinions of Lords Atkin and Wright at 938940 and 945946.
122 122.See, eg, The Auditor (1924) 18 Ll Rep 464.
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123 123.Argo Systems FZE v Liberty Ins (Pte) (The Copa Casino) [2011] EWHC 301 (Comm); [2011] Lloyds Rep IR 427 (varied [2011] EWCA Civ 1572;
[2012] 1 Lloyds Rep 129). The insurers entitlement to rely on the warranty will not normally be affected by the fact that recourse by the assured against a party
with whom he enters an industry standard contract (eg, a towage contract) is normally excluded by such a contract. See ante, 9.35.
124 124.[1936] 2 KB 121; [1937] 2 KB 113 (CA).
125 125.ICC, cl.14.
126 126.For further discussion of Boag, see OMay, 504, where it is suggested that Boag is due for reconsideration. It is thought that ICC, cl.14 may make the
point academic.
127 127.See England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404, 418. See also Arnould, 31.34, where the legal basis of the duty is not stated.
F.D. Rose
128 128.See MacGillivray, 22.059, noting Kitchen Design & Advice Ltd v Lea Valley Water Co [1989] 2 Lloyds Rep 221.
129 129.See Arnould, 31.38; cf MacGillivray, 22.059.
130 130.See MacGillivray, 22.059, noting the facts of Yorkshire Ins Co Ltd v Nisbet Shipping Co [1962] 2 QB 330.
131 131.[2000] Lloyds Rep IR 404, 418.
132 [2000] Lloyds Rep IR 404, 418.
133 133.An illustration of a waiver of subrogation clause in marine insurance standard forms is the Affiliated Companies clause, found in IHC 03, cl.28:
In the event of the vessel being chartered by an associated, subsidiary or affiliated company of the Assured, and in the event of loss of or damage to the vessel
by perils insured under this insurance, the Underwriters waive their rights of subrogation against such charterers, except to the extent that any such charterer has
the benefit of liability cover for such loss or damage. Even where the assured and a third party are not in any direct contractual relationship, the structuring of
the contractual relations and insurance obligations between (eg) multiple parties involved in a construction project may lead to the conclusion that no duty of
care in tort is owed by the third party to the assured: see eg Norwich County Council v Harvey [1989] 1 WLR 828 (CA) and Co-operative Retail Services Ltd v
Taylor Young Partnership (2000) 74 Con LR 12 (CA); [2002] 1 WLR 1419 (HL).
134 134.See, in the marine context, eg Tate & Sons v Hyslop (1885) 15 QBD 368 (CA).
135 135.In the marine context, see eg The Auditor (1924) 18 Ll L Rep 464 (express benefit of insurance clause); Canadian Transport Co Ltd v Court Line
Ltd [1940] AC 934 (HL) (express benefit of insurance clause). See generally, eg, Coupar Transport (London) Ltd v Smiths (Acton) Ltd [1959] 1 Lloyds Rep
369; Rowlands (Mark) Ltd v Berni Inns Ltd [1986] QB 211 (CA); National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582; National Trust v
Haden Young (1994) 72 BLR 1; BT Plc v James Thomson & Sons [1999] Lloyds Rep IR 105.
136 136.See Tate & Sons v Hyslop (1885) 15 QBD 368 (CA).
137 137.See Canadian Transport Co Ltd v Court Line Ltd [1940] AC 934 (HL), 945 (Lord Wright); see further ante, 27.6827.72.
138 138.It is said to be a common feature of construction and related policies for the insurer to waive subrogation rights against all subcontractors and others
working on the site: Colinvaux, 11.34. An illustration in marine insurance standard forms is the Affiliated Companies clause, found in IHC 03, cl.28; supra,
fn.133.
139 139.See Colinvaux, 11.34.
140 140.Cf IHC 03, cl.36 (Contract (Rights of Third Parties) Act 1999) (No benefit of this insurance is intended to be conferred on or enforceable by any
party other than the Assured, save as may be expressly provided herein to the contrary: cl.36.1).
141 141.See The Surf City [1995] 2 Lloyds Rep 242, where an express waiver of subrogation clause in favour of any vessel on which cargo hereby insured
is being carried belonging in part or in whole to a subsidiary and/or affiliated company was included in a cargo policy effected by the shipper of goods sold
under a cif contract. Clarke J rejected the argument that the waiver clause had to be limited to the subsidiaries of the party in fact indemnified by the
insurerthe cif buyer, to whom the policy had been assigned; properly construed, it would extend to subsidiaries of the assured shippers, even after the policy
had been assigned.
142 142.[1993] 2 Lloyds Rep 582.
143 143.[1993] 2 Lloyds Rep 582, 603604.
144 144.[1993] 2 Lloyds Rep 582, 616.
145 145.See MIA 1906, s.78(4).
146 146.See MIA 1906, s.55(2).
147 147.[1993] 2 Lloyds Rep 582, 603. So construed, the clause was considered to be co-extensive with the waiver of subrogation clause which would be
implied into the contract in the absence of express provision: ibid., 603604. See further post, 27.8327.84.
148 148.See esp. Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyds Rep 288; National Oilwell (UK) Ltd v Davy Offshore Ltd [1993]
2 Lloyds Rep 582. See further post, 27.8327.84.
149 149.[1979] 2 Lloyds Rep 45.
150 150.[1979] 2 Lloyds Rep 45, 56.
151 151.[1979] 2 Lloyds Rep 45, 5355.
152 152.For more extended discussion, see MacGillivray, 22.09922.102; Clarke, 31.5D, which contains a particularly full discussion of the competing
rationales of the rules in this area.
153 153.See especially The Yasin [1979] 2 Lloyds Rep 45; Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127; Stone Vickers Ltd v Appledore Ferguson
Shipbuilders Ltd [1991] 2 Lloyds Rep 288, overruled without considering point in [1992] 2 Lloyds Rep 578 (CA); National Oilwell (UK) Ltd v Davy Offshore
Ltd [1993] 2 Lloyds Rep 582.
154 154.See The Yasin [1979] 2 Lloyds Rep 45 and Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127.
155 155.See Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyds Rep 288, reversed without considering point in [1992] 2 Lloyds Rep
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578 (CA); National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582. For subsequent statements suggesting that the language of circuity of
actions should be rejected, in favour of an approach which ultimately treats the issue as a question of the construction of the contract(s) between the parties, see
esp. Co-operative Retail Services Ltd v Taylor Young Partnership & Others (2000) 74 Con LR 12 (CA) (Brooke LJ), [2002] 1 WLR 1419 (HL) (Lord Hope).
156 156.See Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyds Rep 288, 301302, subsequently reversed on a different point at
[1992] 2 Lloyds Rep 578 (CA); National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582.
157 157.See esp. Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyds Rep 288, 302; National Oilwell (UK) Ltd v Davy Offshore Ltd
[1993] 2 Lloyds Rep 582, 614615.
158 158.See Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyds Rep 288, 302; National Oilwell (UK) Ltd v Davy Offshore Ltd
[1993] 2 Lloyds Rep 582, 612615. Cf earlier, The Yasin [1979] 2 Lloyds Rep 45, 55, where Lloyd J took a more limited view, which he subsequently
F.D. Rose
recounted in Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, 140.

159 159.See esp. National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582, 615. See the similar construction of express waiver of
subrogation clauses in favour of co-assured, discussed ante, 27.81.
160 160.See [1993] 2 Lloyds Rep 582, 616.
161 161.See MacGillivray, 22.03322.034.
162 162.Cf the analogous problem presented by waiver of subrogation clauses in insurance contracts, in favour of persons other than the assured, noted ante,
27.80.
163 163.Cf Morris v Ford Motor Co [1973] 1 QB 792 (CA), 800802 (Lord Denning MR).
164 164.[1979] 2 Lloyds Rep 45, 56.
165 165.[1979] 2 Lloyds Rep 45, 56 (Lloyd J), noting that, [s]o far as the defendants are concerned, the [clause] specifically preserves their obligation to
furnish the vessel in all respects in accordance with the charterparty. So far as the insurers are concerned, it could not make any difference to them whether the
premium were found by the plaintiffs or the defendants. If it had been an ordinary policy on goods taken out and paid for by the cargo interests, it could not
possibly be regarded as unjust that the insurers should exercise their ordinary right of subrogation. It cannot make any difference, in point of justice, that in the
particular circumstances of the present case, liability for the premium devolved on the ship.
166 166.That does not, of course, mean that there is not an additional basis, in certain instances, for the insurers claim. Most obviously, in cases where the
insurer pays the assured after the assured has obtained some recovery which reduces the loss for which the insurer has undertaken a liability, the insurers claim
to restitution can be understood as a claim founded on the ground of mistake. Cf the explanation offered by Lord Browne-Wilkinson of such a claim in Napier v
Hunter [1993] AC 713, 752753.
167 167.Cf Napier v Hunter [1993] AC 713, 752753, where Lord Browne-Wilkinson appears to suggest that in cases where the recovery was obtained by
the assured before payment by the insurers, the claim rests on a different ground[i]t was a case of over-payment by the insurers under a mistake not
subsequent recovery by the assured from a third party of a fund for which the assured was accountable to the insurer. Cf esp. Yorkshire Insurance Co Ltd v
Nisbet Shipping Co Ltd [1962] 2 QB 330, 341, where Diplock J considers that, in either case, the insurer has a claim to recover the sums overpaid, which is
enforced by means of the common laws action for money had and received. See similarly, Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 1213 (Saville J).
But, notwithstanding those statements, in Napier v Hunter [1993] AC 713, 749, Lord Browne-Wilkinson noted the failure of counsel to find pre-Judicature Act
authorities in which the insurer successfully sued the assured at law for money had and receivedin relation to monies recovered by the assured from a
third-party wrongdoer in reduction of the insured loss.
168 168.See classically, Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330; cf also eg Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 1213.
169 169.For discussion of whether a restitutionary analysis is possible, and for similar suggestions as to the basis of the claim, see eg S Degeling, A New
Reason for Restitution: The Policy Against Accumulation (2002) 22 OJLS 435. Cf Goff & Jones, ch.3, esp. 3.0093.011, 3.0303.045.
170 170.This question is the parallel of the question, addressed ante, 27.2827.29, of the extent of the insurers rights of subrogation.
171 171.See esp. the classic non-marine cases of Castellain v Preston (1883) 11 QBD 380 (CA) (fire insurance effected by vendor of house; vendor obtaining
full purchase price from buyer notwithstanding fire damage); Darrell v Tibbitts (1880) 5 QBD 560 (CA) (fire insurance effected by lessor; damage caused by
explosion repaired by tenant). See further the discussion ante, 27.2827.29, of the marine cases of Sea Insurance Co v Hadden (1884) 13 QBD 706 (CA);
Young v Merchants Marine Insurance Co Ltd [1932] 2 KB 705 (CA); Assicurazioni Generali De Trieste v Empress Assurance Corp Ltd [1907] 2 KB 814.
172 172.See eg Goole & Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd [1928] 1 KB 589, 593, where this is recognised; the same view
emerges particularly strongly from the opinions in Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 1617 (Saville J), 21 (Dillon LJ), 2223 (Staughton LJ).
Cases which actually concern the extent of the insurers liability under the policy are often indiscriminately cited in the context of determining the extent of the
insurers claim to recoupmentsee eg Merrett v Capitol Indemnity Corp [1991] 1 Lloyds Rep 169, and Colonia Versicherung AG v Amoco Oil Co [1995] 1
Lloyds Rep 570, [1997] 1 Lloyds Rep 261 (CA), which directly concerned the extent of the insurers liability under the policy.
173 173.Cf Castellain v Preston (1883) 11 QBD 380390, 388 (Brett LJ), 404 (Bowen LJ).
174 174.Burnand v Rodocanachi & Sons (1882) 7 App Cas 333 (HL); Stearns v Village Main Reef Gold Mining Co Ltd (1905) 10 Com Cas 89 (CA); Merrett
v Capitol Indemnity Corp [1991] 1 Lloyds Rep 169; Colonia Versicherung AG v Amoco Oil Co [1995] 1 Lloyds Rep 570; [1997] 1 Lloyds Rep 261 (CA);
Talbot Underwriting Ltd v Nausch, Hogan & Murray Inc (The Jascon 5) [2006] EWCA Civ 889; [2006] 2 Lloyds Rep 195.
175 175.[2000] Lloyds Rep IR 404.
176 176.See esp. North of England Iron Steamship Insurance Association v Armstrong (1870) LR 5 QB 244; Thames & Mersey Marine Insurance Co v
British & Chilean Steamship Co [1915] 2 KB 214, 220221, affd [1916] 1 KB 30 (CA); Goole & Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd
[1928] 1 KB 589; Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330.
177 177.See Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330. See also Goole & Hull Steam Towing Co Ltd v Ocean Marine Insurance Co
Ltd [1928] 1 KB 589 (partial loss). Cf however the comments in Lucas Ltd v ECGD [1973] 1 WLR 914 (CA) (rvsd on the construction of the contract: [1974] 1
WLR 909 (HL)).
178 178.Cf esp. Castellain v Preston (1883) 11 QBD 380 (CA); Burnand v Rodocanachi (1882) 7 App Cas 333, 339 (Lord Blackburn); King v Victoria
Insurance Co Ltd [1896] AC 250, 255, 256 (Lord Hobhouse).
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179 179.See Lucas Ltd v ECGD [1973] 1 WLR 914 (CA); rvsd on the construction of the contract at [1974] 1 WLR 909 (HL).
180 180.See further ante, 27.4427.57.
181 181.Lonrho Exports Ltd v ECGD [1999] Ch 158, 181.
182 182.See ante, 27.5127.53.
183 183.[1907] 2 KB 814.
184 184.Quaere whether an insurer can ever benefit from a similar deduction; cf Clarke, 316B3 (yes?); MacGillivray, 22.061 (no). Cf the express
provision for prior allowance of costs incurred by insurer or insured, before any recoveries are allocated, in IHC 03, cl. 49, noted ante, 27.53.
185 185.[2000] Lloyds Rep IR 404, 423430.
F.D. Rose
186 186.[2000] Lloyds Rep IR 404, 423, where the judge reasoned that at the later stage when the claim to an indemnity is made by the assured, the insurer
is only liable to pay whatever part of the loss that is insured that remains unrecovered following the third party recoveries; [e]quity is not involved and the
insurer is not obtaining recoupment[;] the insurer is merely being sued, or making payment for, a contractual debt.
187 187.[2000] Lloyds Rep IR 404, 423426.
188 188.See, inter alia, Hatch Mansfield & Co Ltd v Weingott (1906) 22 TLR 366; Duus Brown & Co v Binning (1906) Com Cas 190; Assicurazioni Generali
de Trieste v Empress Assurance Corp Ltd [1907] 2 KB 814; Ventouris v Mountain (The Italia Express) (No 2) [1992] 2 Lloyds Rep 281.
189 189.England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404, 425.
190 190.[2000] Lloyds Rep IR 404, 425426.
191 191.See ante, 27.96.
192 192.See, eg, Goole & Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd [1928] 1 KB 589, 593, where this is recognised; the same view
emerges particularly strongly from the opinions in Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 1617 (Saville J), 21 (Dillon LJ), 2223 (Staughton LJ).
193 193.[1993] AC 713 (HL).
194 194.See, eg, Derham, 5354. That view was strongly taken by Saville J at first instance in Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 1617.
195 195.See eg Re Driscoll [1918] 1 IR 152, 159; Napier v Hunter [1993] AC 713, 725 (counsel for the assureds). See also Napier v Kershaw Ltd [1993] 1
Lloyds Rep 10, 12, 1617 (Saville J).
196 196.See eg National Fire Insurance Co v McLaren (1886) 12 OR 682, 687; Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 12, 1617 (Salville J).
Castellain v Preston (1883) 11 QBD 380, 386 (Brett LJ), was heavily relied on by the assureds in Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, where he
proposes that the fundamental principle of insurance is that the contract is a contract of indemnity, which means that the assured, in case of a loss against
which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified, and that if ever a proposition is brought forward
which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a
full indemnity, that proposition must certainly be wrong.
197 197.See similarly, Bennett, 1st edn, 416, noting that [i]n the law of marine property insurance this principle is largely eclipsed by two exceptions,
which allow the insurer a claim to recoupment even before the assured is fully indemnified for his actual loss.
198 198.Quaere where there is a deductible; see post, 27.129.
199 199.North of England Iron Steamship Insurance Association v Armstrong (1870) LR 5 QB 244; Thames & Mersey Mar Ins Co v British & Chilean SS Co
[1915] 2 KB 214, affd [1916] 1 KB 30 (CA); Goole & Hull Steam Towing Co v Ocean Marine Insurance Co [1928] 1 KB 589; Yorkshire Ins Co Ltd v Nisbet
Shipping Co Ltd [1962] 2 QB 330.
200 200.(1870) LR 5 QB 244.
201 201.[1915] 2 KB 214, affd [1916] 1 KB 30 (CA).
202 202.[1962] 2 QB 330.
203 203.[1928] 1 KB 589.
204 204.See The Commonwealth [1907] P 216 (CA).
205 205.[1907] P 216 (CA).
206 206.[1993] AC 713.
207 207.Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10.
208 208.Ibid., 1617.
209 209.Ibid., 1617.
210 210.Ibid., 17.
211 211.Ibid., 1617.
212 212.Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10 (CA), 1719.
213 213.See also [1993] AC 713, 746748, per Lord Jauncey of Tullichettle, with whom all agreed.
214 214.Ibid., 730731.
215 215.Ibid., 730731.
216 216.Ibid., 730.
217 217.Ibid., 731.
218 218.Ibid., 731.
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219 219.Ibid., 731.

220 220.Cf, however, Napier v Hunter [1993] AC 713, 726727, where counsel for the insurers recognised that the marine insurance approach was different
from the top down approach argued for; see also Napier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 2324 (Staughton LJ), recognising the different principles
applying to underinsurance or partial insurance on property.
221 221.[1996] 1 Lloyds Rep 664; affd on this point [1997] 2 Lloyds Rep 687 (CA); subsequently applied in Kuwait Airways Corp v Kuwait Ins Co SAK
[2000] 1 Lloyds Rep 252.
222 222.[1996] 1 Lloyds Rep 664, 695.
223 223.Ibid., 695, noting, inter alia, MIA 1906, ss.79 and 81, and The Commonwealth [1907] P 216 (CA).
F.D. Rose
224 224.[1996] 1 Lloyds Rep 664, 695. See subsequently Kuwait Airways Corp v Kuwait Ins Co SAK [2000] 1 Lloyds Rep 252, 261262, where Langley J
held that in allocating the recoveries it was appropriate to take the actual value of the planes recovered at the time of recovery, and not their agreed value in
the policy. The underlying aim was to ensure that no more than a full indemnity is paid and received. Although the policy was a valued policy, that result was
achieved by restoring the actual value of the recoveries, which was substantially less than the agreed value.
225 225.See the cases discussed ante, 27.10827.112.
226 226.[1907] P 216 (CA).
227 227.Arnould, 31.4531.48.
228 228.See esp. MIA 1906, s.81.
229 229.Arnould, 31.4531.48.
230 230.That seems particularly appropriate in light of the fact that, where the marine insurance cases were noted, it was explicitly recognised that different
principles might applyNapier v Kershaw Ltd [1993] 1 Lloyds Rep 10, 2324 (Staughton LJ), noting the established principles applying to non-marine and
marine property insurance; Napier v Hunter [1993] AC 713, 726727 (counsel), noting that the case was different from a case of under- or partial insurance of a
ship, where recoveries are allocated pro rata on the basis that the insured is pro tanto his own insurer.
231 231.Arnould, 31.4531.48.
232 232.See for possible support, Cunard v Marten [1902] 2 KB 624; [1903] 2 KB 511 (CA), which is cited in Arnould, 31.58, fn.226 as support for the
suggestion that recoveries under a marine liability policy, covering liabilities not exceeding a stated limit, would fall to be distributed on a top down basis.
233 233.Cf Kuwait Airways Corp v Kuwait Insurance Co SAK [1996] 1 Lloyds Rep 664, where the top down principle was applied to an aviation property
insurance policy.
234 234.Arnould, 31.4531.48.
235 235.See ante, 18.72. It is apparently less usual in hull policies for there to be more than one layer of insurance, above the deductible, or for the policy to
contain a limit clauserather than a clause worded as partial insurance. See, in particular, ITCH 83, cl.12; similarly, ITCH 95, cl.12, and IVCH 95, cl.10. See
now IHC 03, cl.15.
236 236.Arnould, 31.4531.48, describing the matter as of some difficulty. Arnould notes that, whilst the analogy is not precise, insurance subject to a
deductible is regarded as first loss or primary, not as excess of loss insurance, citing Irish National Ins Co Ltd v Oman Ins Co Ltd [1983] 2 Lloyds Rep
453.
237 237.ITCH 83, cl.12.3; similarly, ITCH 95, cl.12.3, and IVCH 95, cl.10.3. See post, 27.132.
238 238.Arnould, 31.4531.48.
239 239.IHC 03, cl.49.4. See post, 27.13327.134.
240 240.ITCH 83, cl.12.3; similarly, ITCH 95, cl.12.3, and IVCH 95, cl.10.3. Cf ante, 27.55.
241 241.[1993] AC 713.
242 242.See post, 27.11627.123.
243 243.ICH 03, cl.49.4. Cf the special provision in cl.49.5 as regards collisions, where coverage is not provided in accordance with IHC 03, cl.6 (3/4ths
Collision Liability) (Where the insured vessel is in collision with another vessel and both vessels are to blame then, unless the liability of one or both vessels
becomes limited by law, any recovery due to the Underwriters shall be calculated on the principle of cross liabilities as if the respective Owners had been
compelled to pay to each other such proportion of each others damages as may have been properly allowed in ascertaining the balance or sum payable by or to
the Assured in consequence of the collision).
244 244.See post, 27.11327.115.
245 245.[1993] AC 713.
246 246.See post, 27.128.
247 247.See, eg, Thames & Mersey Mar Ins Co v British & Chilean Steamship Co [1915] 2 KB 214, [1916] 1 KB 30 (CA); Goole & Hull Steam Towing Co v
Ocean Marine Insurance Co [1928] 1 KB 589; Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330.
248 248.See eg Goole & Hull Towing Co v Ocean Marine Insurance Co [1928] 1 KB 589.
249 249.See Yorkshire Ins Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330, 333.
250 250.[1907] P 216 (CA).
251 251.Ibid., 223.
252 252.Ibid., 223.
253 253.[1993] 1 Lloyds Rep 10 (Saville J and CA); [1993] AC 713.
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254 254.Cf the argument of counsel for the assureds, cited at [1993] 1 Lloyds Rep 10, 21.
255 255.[1936] 2 KB 121; [1937] 2 KB 113 (CA).
256 256.[1993] AC 714.
257 257.ICC, cl.14.
258 258.[1993] AC 713 (HL).
259 259.Yorkshire Ins Co Ltd v Nisbet Shipping Co [1962] 2 QB 330, 339341 (Diplock J); similarly Hobbs v Marlowe [1978] AC 16, 39 (Lord Diplock);
Orakpo v Manson Investments Ltd [1978] AC 95, 104 (Lord Diplock).
260 260.Cf Napier v Hunter [1993] AC 713, 736 (Lord Templeman), 752 (Lord Browne-Wilkinson).
F.D. Rose
261 261.See further post, 27.14627.150.

262 262.See esp. [1993] AC 713, 738 (Lord Templeman), 744 (Lord Goff), 752 (Lord Browne-Wilkinson).
263 263.[1993] AC 713, 745.
264 264.[1993] AC 713, 737738 (Lord Templeman), 744 (Lord Goff), 750751 (Lord Browne-Wilkinson). Particular reliance was placed on White v
Dobinson (1844) 14 Sim 273; 116 LT OS 233, and Re Miller, Gibb & Co [1957] 1 WLR 703, in addition to dicta in a number of other decisions, such as Randal
v Cockran (1748) 1 Ves Sen 98; Blaauwpot v Da Costa (1758) 1 Ed 130; Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483 (CA); King v
Victoria Insurance Co Ltd [1896] AC 250 (PC).
265 265.See esp. [1993] AC 713, 737738 (Lord Templeman).
266 266.See [1993] AC 713, 752 (Lord Browne-Wilkinson).
267 267.Cf the reservations expressed in Goff & Jones, 3.045. Cf also the unsuccessful challenge to the decision in England v Guardian Insurance Ltd
[2000] Lloyds Rep IR 404, 413416.
268 268.See, eg, Mitchell & Watterson, 10.14010.156.
269 269.See, eg, ibid.
270 270.Cf ibid.
271 271.Goff & Jones, 3.045.
272 272.See esp. England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404, 413416, where the laws recognition of a lien was challenged, but the
judge concluded that Napiers case constitutes a clear and authoritative determination that an insurer has a right of subrogation whose enforcement is assisted
by equity and that [t]hat equitable assistance is supplemented, where necessary, by a lien which is imposed on any identifiable moneys recovered by the
insured (Judge Thornton QC). He acknowledged the criticisms of Mitchell, in particular, in which he found some force; but he concluded that they could not
be allowed to undermine the reasoning nor the determinative effect of the four full opinions that were delivered.
273 273.See Napier v Hunter [1993] AC 713; England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404.
274 274.Cf MacGillivray, 22.068, fn.1, noting some conflict concerning whether ex gratia payments to the assured, which the insurer is entitled to the
benefit of, are also held subject to an equitable lien. Cf Randal v Cockran (1748) 1 Ves Sen 98, suggesting that the assured might be trustee of such a recovery,
and Stearns v Village Main Reef Gold Mining Co (1905) 10 Com Cas 89, 98, suggesting that the relationship is simply that of creditor and debtor, not trustee
and beneficiary. It has been suggested that the better explanation for the view expressed in the latter case was not that the payment was ex gratia, but that the
third-party recovery did not form an identifiable fundhaving been paid to the assured before the indemnity was paid by the insurer: see MacGillivray,
22.068, fn.203; similarly Napier v Hunter [1993] AC 713, 751752.
275 275.[1993] AC 713, 752, apparently explaining the denial that the assured had any equitable proprietary rights in Stearns v Village Main Reef Gold
Mining Co (1905) 10 Com Cas 89, 98, on that basis.
276 276.[1993] AC 713, 752.
277 277.See Mitchell & Watterson, 10.14010.156.
278 278.[1993] AC 713, 738, 740.
279 279.Ibid., 745.
280 280.Ibid., 752753.
281 281.See MacGillivray, 22.070. See ante, 27.3027.32.
282 282.Cf the discussion ante, 27.3027.32.
283 283.Such concerns underlie the reservations expressed about the recognition of a lien over the assureds right of action in Napier v Hunter [1993] AC 713
by Lord Goff (at 745) and Lord Browne-Wilkinson (at 753). See also MacGillivray, 22.070, suggesting that it would be difficult for a third party to know
whether he is safe to compromise the claims brought by the assured, or even whether he is safe to pay the assured in full, without also obtaining a discharge
from the insurers.
284 284.See ante, 27.14627.152.
285 285.[1993] AC 713, 738739.
286 286.See [1993] AC 713, 752 (Lord Browne-Wilkinson).
287 287.England v Guardian Insurance Ltd [2000] Lloyds Rep IR 404, 416418.
288 288.See further ante, 27.7427.75.
289 289.Cf Re Miller, Gibb & Co Ltd [1957] 1 WLR 703, endorsed by the House of Lords in Napier v Hunter [1993] AC 713. See further England v
Guardian Insurance Ltd [2000] Lloyds Rep IR 404, 418419, where it was held that the lien takes priority over the Legal Aid Boards statutory charge; but
where it was further held that, where the proceedings in which the recovery is obtained are partly unsuccessful, and a costs order is made against the assured, the
defendant has a prior claim to offset the costs against the sums recovered by the assured in the proceedings.
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290 290.See White v Dobinson (1844) 14 Sim 273, where the court granted an injunction restraining the insured shipowner from receiving, and the defendant
from paying, the sum of 800 of damages, without first paying or providing for the sum of 205 which the insurers were entitled to be recouped. That injunction
was upheld on appeal, though discharged as against the insured shipowner, at (1844) 116 LT OS 233. Cf Napier v Hunter [1993] AC 713, 745, 751, where Lord
Goff and Lord Browne-Wilkinson both considered that the fact that the injunction was discharged against the third-party wrongdoer might suggest that the
insurer had a proprietary right in the damages recovered, and not in the assureds right of action.
291 291.See Napier v Hunter [1993] AC 713, 739.
292 292.The Owners and/or Demise Charterers of the Dredger Kamal XXVI and the Barge Kamal XXIV v The Owners of the Ship Ariela [2010] EWHC 2531
(Comm); [2011] 1 Lloyds Rep 291.
F.D. Rose

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MARINE INSURANCE: LAW AND PRACTICE - 2nd Edition, 2012

CHAPTER 27 SUBROGATION AND RECOUPMENT

SUBROGATION AND RECOUPMENT

described in Part II of this chapter.

satisfy the particular claim in respect of which he asserts a right to be subrogated.6

claim he may have by virtue of his lien has been satisfied.61

costs awards made in proceedings

Loss of cause of action by failure to assert rights against third party

recoupment against the assured of the amount of the overpaid indemnity.

The quantification of the insurers entitlementthe allocation of recoveries

by the insurers under the policy.

The extent of the lien

57 57.See MacGillivray, 22.044.

92 92.[1907] P 216 (CA), discussed post, 27.11327.115.

recounted in Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, 140.

219 219.Ibid., 731.

261 261.See further post, 27.14627.150.

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