Page 34 - The Insurance Times February 2026

Inurance Demystified

Subrogation -Its

Inference on

Indemnity

Dr Abhijit K. Chattoraj
Chartered Insurer

The House of Lords protected an insurer's right of subrogation by an equitable lien over the proceeds
of the insured's claim against the third party. Concerns abound over whether insurers could recover
under a stop-loss policy if the court did not impose an equitable lien. An equitable lien is a right
recognised by equity or fairness that requires it to be shared fairly, without enriching anyone unfairly.

I n my last article published in January under the caption There are several corollaries of thepriciple of subrogation.

'The Legal and Technical Craft of Drafting a Letter of
One such corollary is that, by exercising its subrogation
Subrogation', I explained how the Constitution Bench of rights, the insurer can recover an amount equivalent to the
the Supreme Court classified subrogations under three broad amount it paid under the contract of insurance. Subrogation
categories: (i) subrogation by equitable assignment; (ii) means the transfer of the insured's rights and remedies to
subrogation by contract; and (iii) subrogation-cum- the insurer to recover losses from the wrongdoer to the
assignment. Interestingly, the Subrogation-cum- Assignment extent of the claim paid. In this context, the difference
allows the insurer to retain the entire amount recovered, between the legal rights accruing to subrogation under
even if it exceeds what it has paid to the insured. section 79 and abandonment under section 63(1) of the
Marine Insurance Act 1906 is interesting to note. The rights
Traditionally, the principle of subrogation has its roots in the of subrogation arise from all contracts of indemnity,
principle of indemnity, which disallows a person from including contracts covering partial as well as total losses.
recovering the same amount of losses from more than two However, it gives the right of recovery, not the proprietary
sources, thereby preventing a profit from the damage to (ownership) right.
their property. There are several reasons to invoke the
principle of subrogation. The one mentioned above is the On the other hand, abandonment gives the insurer the right
most important reason. The second reason is that the to take over a proprietary interest in the subject matter
wrongdoer should not be allowed to go scot-free. He/she upon payment of the total loss. Upon acceptance of
should recompense the losses of the aggrieved for his abandonment and payment of the total loss, the insurer
negligence, other than no-fault liability. The third reason is may realise on the property more than it has paid and retain
that subrogation recoveries can smooth the rate-making the entire proceeds. Under subrogation, the insurer, upon
process. payment of a loss, is entitled to sue the third party in the

30 February 2026 The Insurance Times