The nature of the insurers’ rights over a subrogated claim

After some dispute, it is now settled that subrogation rights are equitable in nature. It is beyond doubt that once the insurers have indemnified the assured and there has been a claim against the third party responsible for the assured’s loss, any damages that have been recovered by the assured from the third party are held subject to an equitable interest in favour of the insurers. Accordingly, the insurers have a priority claim over the money in the event of the assured’s insolvency. What is less clear is whether the assured’s cause of action is itself subject to an equitable interest in favour of the insurers. Although there is no final decision on the point, some members of the House of Lords in Lord Napier and Ettrick v Hunter [1993] AC 713 felt that this was the case. However, in Re Ballast plc, St Paul Travellers Insurance Co Ltd v Dargan [2006] EWHC 3189 (Ch) that proposition has been rejected.