Page 35 - The Insurance Times February 2026

insured's Name. As for recoveries, it cannot retain anything underwriters). The respondent was 'The stop-loss insurers'
beyond the amount of the claim paid under the policy. of those Names and syndicate managing agent, Outhwaite,
a third party responsible for arranging reinsurance.
In a Subrogation by Equitable Assignment, the insurer can
recover any amount that remains after the insured's The Syndicate of Names underwrote certain insurance policies
claim is fully settled. relating to asbestos claims in 1992. A significant number of
substantial claims involving substantial sums of money were
Take a hypothetical example. A building was insured for Rs made under these policies. Outhwaite's inadequate reinsurance
8lac. A fire gutted the entire building. It was a case of total cover for those risks magnified the losses.
loss. During the claim assessment, it was observed that the
building's value was Rs 10 lac. There was a deductible of Rs As prudent underwriters, each Name safeguarded its
20,000/-. The insurer would pay 7.8 lac after applying the underwriting loss by arranging stop-loss insurance. The stop-
law of averages clause and deducting the deductible. The loss policies, as they worked, covered losses above a fixed
insurer received a subrogation letter from the insured and excess and were subject to an overall policy limit. As per
filed a case on the insured's behalf against the architect the arrangement, each Name brooked the first layer of loss
responsible for the loss caused by faulty design. The court (excess), stop-loss insurers indemnified for the middle layer,
allowed Rs 6 lac. Rs 1 lac was spent on meeting legal and the Name bore any loss above the limit itself.
expenses. How will this amount be shared between the
insured and the insurer in the absence of any specific Negligent Reinsurer paid - in a separate cause of action,
provision regarding the sharing? The Names prosecuted Outhwaite, alleging negligence in
failing to secure proper reinsurance. Outhwaite paid £116
Now the question arises: what actual loss did the insured million to the Names.
suffer, and how much did he recover from the insurer? And
how can the insurer recover any amount that remains after Payment by stop-loss insurers and the dispute that
the insured's claim is fully settled? followed - In addition to the recoveries from the erring
reinsurer, the Names were also paid by the stop-loss insurers
under the stop-loss policies.
The insurer's actual loss was Rs 10 lac/-; he received Rs 7.8
lac. If he gets 2.2 lac, he can recoup his entire loss. Kindly The stop-loss insurers exercised their right of subrogation.
remember that had he insured his building for Rs 10 lac, he The dispute was not whether subrogation existed, but
would have received the whole amount. It is because of the how much the insurers were entitled to.
average clause that he gets 8 lac. Insurance is just one way
of mitigating loss. The right to recover the loss actually vests In the lead judgment, Lord Templeman explained the
in the insured, who transfers it after his claim is settled. The distribution of quantum with a hypothetical set of figures.
insured should not be allowed to make a profit; therefore, He assumed in each case that each of the Names had
he should not be allowed to recover more than his losses. suffered a net underwriting loss for the year of £160,000.
The moot question is: Can the insured recover Rs 2.2 lac He also assumed that they had stop-loss insurance for a total
(Rs 2 lac loss on account of underinsurance and Rs .20 of £100,000, subject to an excess of £25,000.
lac towards deductible or excess)? and hand over Rs.
2.8 lac to the insurer (the insured was left with Rs. 5 lac It is therefore evident that each Name would have to pay
after meeting the legal expenses)? out £25,000 of their own before the stop-loss insurance sets
in. So, of the total loss, the first £25,000 is Name's
There was no clear answer to the above query until Napier responsibility. The "next" £100,000 was covered by the stop-
v. Hunter (1993). The insured could have recovered both loss insurers. And the "last" £35,000 was again borne by
losses - the underinsurance loss and the excess loss. But the Names, as by then the insurance cover had exhausted.
judgment in Napier v. Hunter (1993) clarified this position.
Lord Templeman also presumed that the hypothetical
amount which each Name recovered from Outhwaite was
Facts of Lord Napier and Ettrick v Hunter [1993]
£130,000. So the question was: how much of that £130,000
AC 713 would the stop loss insurers be subrogated to?
There were three parties involved. The appellants were a
syndicate of "Names" at Lloyd's of London (individual Lord Templeman in his lead judgment. held that subrogation

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