It is a reality that due to the high number of accidents on our roads the average South African will at one time or another deal with the insurance claim procedure and undoubtedly be confronted with the term “subrogation”.

Subrogation can be defined as a right that allows one party, normally an insurance company, to step in the shoes of another, the insured, and proceed with legal steps against the negligent third party that was responsible for the damages suffered by the insured.

Subrogation is one of the ways in which insurance companies recover monies that were paid out to the party insured by them.

An example of a case of subrogation is as follows: Driver A collides into the rear of your motor vehicle and causes damages to your motor vehicle. You have a valid insurance policy and your insurance company pays for the damages caused to your motor vehicle. Your insurance company will then have the right to claim the amount paid to you, from Driver A.  The insurance company is thus “subrogated” to the rights of your policy and can “step in your shoes” to recover any amount paid out to you..

Subrogation goes hand in hand with the principles of indemnity, and the primary purpose of subrogation is to prevent the insured from receiving compensation from both the insurer and the negligent third party.

The case of Rand Mutual Assurance Company Ltd v Road Accident Fund ZASCA 114; 2008 (6) SA 511 SCA created the standard for modern principle of subrogation in the field of insurance law.

For the first time in the history of South African insurance law, insurers could in terms of the doctrine of subrogation, proceed against third parties in their own names. Prior to this case, an insurer had to sue the third party through the insured and thus did so in the name of the insured.

  1. How Subrogation Works

Subrogation is generally the last part of the insurance claims process. In most cases, the insured hears little about it and is only confronted with it once the insurance company proceeds with a claim against the negligent third party.

If an insurance company does decide to pursue subrogation, it has to inform the insurer of their intention to proceed with legal steps against the third party. This is important to you as policy holder since if the insurance company proceed swith legal steps against the third party, they also attempt to recover the cost of your deductible/s, and refund it to you once they recover it. These deductibles would in most cases be your excesses or damages not covered by the insurance policy.

  1. How does the process works?

Once you lodge a claim with the insurance company and it is determined that another driver or party is at fault, the insurance company will generally pay the claim or repair the damages to your vehicle.

The insurance company will then seek to recover all the money or at least a part of it paid to you from the negligent party that caused the accident.

It is important to note that the insurance contract often places an obligation on the insured to co-operate with the insurer during the recovery process. This assistance might entail that the insured would have to attend court to give evidence on how the collision occurred.

  1. Requirements for Subrogation

Valid insurance contract

Since an insurer’s right to subrogation is derived from the contract of insurance, no subrogation can take place where an insurer has paid out monies in terms of an invalid insurance contract

Insured’s loss must have been fully compensated

Often an insurance contract does not fully protect an insured in respect of his damages. There may be an excess payable or the sum insured may be insufficient. The insurer must first fully compensate the insured before the insurer can lay claim to the monies received by the insured from the third party.

The Right must be susceptible of subrogation

An insurer can only claim subrogation from the third party if the insured have a right against the third party

  1. Duties of the insurer under subrogation

It is the duty of the insurer who is dominus litis not to prejudice the position of the insured for example an unfavourable settlement.

Further since the insurer merely represents the insured in the proceedings against the third party and acts in the insured’s name, any legal cost or cost awarded in favour of the third party must be borne by the insurer.

The insurer’s right to subrogate can only be enforced against the insured. Both the insured and the insurer have reciprocal duties to each other to preserve the insured’s claim against the third party. In terms of most of the insurance policies the insured is specifically prevented from compromising or prejudicing any claim by either, agreeing to a settlement without the insurer’s express authorisation, signing an admission of guild/negligence or to release a third party from any liability.  It is important as in insured to avoid abandoning any rights of recovery against a third party.

  1. Conclusion

Since an insurance policy is a contract consentingly entered into between the insured and the insurer and as such it is of upmost importance to understand the terms you are binding yourself to.

Further since most insurance contracts are entered into telephonically, if you have any uncertainty regarding a term in the insurance contract rather request your insurance to properly explain the terms.

Izak Viljoen is a  Director at Barnard Incorporated, Centurion.

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