Subrogation

Subrogation and co-insurance

Where an insurer is required to make good the assured’s loss, the insurer has subrogation rights against any third party who is liable to the assured for that loss and may sue the third party using the name of the assured. An exception has developed to this rule where the wrongdoer is a co-assured under the policy, the courts having recognised an implied term that an insurer is not permitted to use subrogation rights to bring an action against a person who is himself entitled to be indemnified under the policy. If the third party is to benefit from this defence, he must establish that he is indeed a co-assured, and this will depend upon whether the main assured was authorised to enter into an insurance policy that covered the third party’s own interest. Any such authorisation will be derived from the contract between the assured and the third party. Colman J in BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2004] EWHC 999 (Comm) was asked to consider the wording of such a contract to determine whether it authorised the assured to procure insurance for the third party.