May 2021

Does your insurer have a right to take legal action against a third party using your name?

Is there a time frame for such action? Why should the insurer disturb my peace long after claim payment and more so when I no longer insure with them? Am I under any obligation to cooperate with them?

Subrogation is the mechanism by which an insurer can take action to recover moneys expended in compensating the insured for the loss occasioned by a third party whose negligence caused the loss in question.

Having compensated the insured for loss arising out of an insurance claim, the insurer is entitled to all the benefits, rights or remedies , legal or equitable, vested in the insured against a third party whether in contract or tort. To enforce such rights, the insurer brings the action in the name of the insured at the insurer’s cost. The insurer is said to “step into the shoes” of the insured and is subrogated to his rights.

Simply put, Subrogation is the substitution of one person for another so that the substituted person assumes the rights of the other.

An insurer institutes or defends a claim in its insured’s name because it cannot prosecute or defend such claim in its name. It provides legal representation to its insured and pays the legal costs for such legal representation. On its part, the insured is contractually obligated to fully co-operate with counsel who has been appointed on his behalf to assist the insured in recovering any sums paid to such third party.

If the insured renounces or compromises any right of action he has against a third party, he is in fundamental breach of the contract of insurance and must repay to the insurers the benefit of which he has thereby deprived them. If on the other hand he receives compensation from a third party in respect of the same risk, he must surrender or account for it to the insurer; otherwise this would amount to double compensation.

The insured’s contractual obligations entails inter alia, that he collaborates with the insurer in pursuing recovery of compensation from the third parties to whom the loss for which he is indemnified may be attributed. In other words, the insured is bound to actively participate in all proceedings to this end at the cost of the insurer. The said participation entails, providing a detailed statement on the circumstances of the loss, swearing a verifying affidavit and testifying in court as a witness, if need be. Quite often, such matters are settled out of court without the need for the witness’ court attendance.

The court interrogated the doctrine of subrogation in the case ofMercantile Life & General Assurance Company Limited & another v Dilip M Shah & 3 others [2015] eKLR, when it referred to the Treatise of  K.I. Laibuta; Principles of Commercial Law at pg 254 where the author stated as follows:-

“Having compensated the insured, the insurer is entitled to take advantage of and enforce any legal and equitable rights and remedies that the insured has or might have enforced against such third party whether in contract or in tort. To enforce such rights, the insurer brings the action IN THE NAME OF THE INSURED who must lend his name in return of an undertaking that he will not be personally liable for the costs in the action. The insurer is said to “step into the shoes” (stands in the place of the insured) and is subrogated to his rights.”

Time frame; Under the Limitation of Actions Act Cap 22 an action founded on tort for damages for personal injuries or damage to property caused by negligence, may not be brought after the end of three years from the date on which the cause of action accrued. Accordingly, the insurer has up to three years to file a recovery suit and the insured is bound to comply for as long as the claim is within the prescribed limitation period.

Consequences of non-compliance; in the event of non-compliance by the insured, the insurer has a right to sue the insured for the recovery of the amount that was due from the third party, on the basis of Breach of the insurance contract.

In a nutshell, beware when you refuse to cooperate with your insurer in the claim recovery process. You might find yourself on the receiving end!

By: J. Waithaka

17^THMAY 2021