Insurers should always give some thought and resource to making recoveries. It can be a good revenue stream. By ‘recoveries’, I am referring to insurer’s retrieval of income from an insured or a third party following a payment (the outlay) having been made by insurers.
I shall briefly go through each of the main three ways that an insurer can recover their outlay, focusing on insurers based in England/ Wales making claims in this jurisdiction and abroad.
This is probably the most frequently used recoveries tool used by insurers in England and Wales. It is written into most insurance policies, but is available absent any such policy wording. This right of subrogation is one of the nuances of English law that most confuses foreign and European courts in particular.
There is a lot of judicial precedent and volumes of books written about subrogation (lawyers can go on and on…) that I will attempt to cut through and lay out the most important points for an insurer to make a subrogated claim.
The two examples I will use for this section of the article are:
- A payment is made to the insured for lost baggage at an airport, or
- To another party such as a hospital for medical expenses following a personal injury caused by a third party. One person (the insurer) is then substituted for another (the policyholder).
The insurer may then claim reimbursement from the liable third party for the money paid out. Using my examples, this would be from the airline for lost baggage or responsible party following a personal injury. The insurer can take advantage of any means available to the policyholder to make that recovery.
That claim should be brought in the insured’s name where the policyholder’s claim is subject to the assessment of the loss in accordance with English law. Where the assessment is in accordance with foreign law, it will be that foreign law that governs in whose name the subrogated claims need be brought. Often, where an accident occurs abroad, that subrogated claim needs to be brought in the insurer’s name.
Rules and regulations for subrogation
Important points for travel insurers to note:
- A subrogated claim may only be brought by the insurer after the payment has been made. It is still worth a travel insurer contacting the airline or a third-party liability insurer (using my examples) to see if they will cover the loss. That will save insurers having to make a payment and then reviewing whether a recovery can be made.
- A subrogated claim cannot be made where both insurers have agreed not to. For example, motor insurers in England are party to the Knock for Knock Agreement, which prevents those insurers from looking to one another for reimbursement of their outlay. There is specific provision in some legislation preventing the recovery of subrogated claims. For example, an insurer may not recover their outlay where the liable third party is an uninsured driver and the claim is being met by the Motor Insurer's Bureaux.
- An insurer making a subrogated claim may not recover more than they have paid out.
- Insurers do not have a right of subrogation for every payment that they make. Typically, payments under the Personal Accident section of the policy (for death, disablement or hospital benefit etc) are not recoverable.
- The insured conducting the litigation that includes a subrogated claim cannot abandon or settle the claim without regard for the outlay. The insured could be liable to the insurer for repayment of that outlay. Any claimant bringing proceedings that includes a subrogated claim that involves a compromised settlement needs to involve insurers before settling that claim, otherwise the insurer would normally be able to recover the outlay in full from the insured.
How to deal with uncooperative policyholders
Where we have an uncooperative insured who refuses to include a subrogated claim, the insurer may institute proceedings against the liable party and the insured as a second defendant. The insurer would then either ask that the liable party (first defendant) pay the insured (second defendant), and for a declaration that the insured hold the money for the insurer. From experience, this can be rather complicated but achieves the desired result for the insurer.
Another scenario where we have had to deal with an uncooperative policyholder involves their starting to bring a claim but then declining to cooperate in providing evidence such as witness statements or attendance at trial
More usually, where we have an uncooperative insured who does not wish to bring a valid claim, - despite the insured having been reminded of their obligations - the insurer would simply bring a claim in the insured’s name. The insurer would need to bear their own costs and the risk of paying the defendant’s costs in such proceedings.
Another scenario where we have had to deal with an uncooperative policyholder involves their starting to bring a claim but then declining to cooperate in providing evidence such as witness statements or attendance at trial. Whilst the insured is likely to be an unhelpful witness, we would remind the insured of their obligations to give all necessary assistance, and thereafter if they continued to not cooperate, sue the insured for the loss of the chance to recover that outlay.
We could pursue the insured where they have not protected all the insurer’s right by failing to file a claim in time or at all. It would be preferable to see a clause in the policy wording compelling the insurer to file such a claim, but such a claim could be brought without such a clause.
Points to note if considering subrogating a claim
Reinsurers are in the same position as insurers and can step into the shoes of the insured so as to make the subrogated claim.
A brief mention of Abandonment and Assignment is worthwhile. Abandonment and Assignment are separate and distinct principles from subrogation.
Where the insured has been paid for a lost item that is subsequently found, the insurer is entitled to that item. That is the case even though the item may have increased in value, and the insurer may take the profit. I have dealt with a case of some rather valuable stolen Rolex watches that were subsequently retrieved and to which the insurer was entitled to retain – and sell.
Assignment as an alternative
An alternative to subrogation would be assignment. In this case, an insured person may assign their rights to make a recovery from a liable third party to an insurer. That insurer may not require the insured to assign their rights against a third party unless it is written into the insurance contract, although an insured may agree to the assignment. Again, the insurer may recover more than they have paid out to the insured as a result of assignment and they should bring the claim in their own rather than the insured’s name.
where insurers discover a payment to the insured for an amount that has also been paid by the insurer, that outlay should be returned to the insurer.
And finally, where insurers discover a payment to the insured for an amount that has also been paid by the insurer, that outlay should be returned to the insurer. This is a hot topic at the moment with holidaymakers having innocently asked for a reimbursement from the holiday company/airline/hotel/credit card company for a cancelled holiday. Following the holiday company/airline/hotel/credit card company declining to make a payment, the innocent policyholder then went to their travel insurers, who have paid out. The holiday company/airline/hotel/credit card company then had a change of heart, with a great number rightly reimbursing their customers. Those customers are policyholders who are holding the insurer’s money and really need to return the outlay paid out to their insurers. A great deal of money has already been returned to travel insurers by policyholders and holiday companies.
A lot of policyholders, holiday companies and airlines are being very helpful in providing information that should help insurers with these recoveries.
As this has been covered in a previous issue of ITIJ, I’ll only mention it briefly – this is common where we have travel insurance policies and insurers are right to continually enquire as to whether policyholders have other policies. Normally it is home insurance or private medical insurance that provides the dual insurance.
In law, the insured can choose which policy they wish to claim against. They can claim the whole amount from one insurer even though they have several policies covering the same loss. It is then up to the insurers to deal with the apportionment of the loss.
Either or both insurers can deal with the claim and then split the cost of the claim on a pro-rata basis depending on the indemnity provided by the policy (rateable proportion of the loss) or using the average clauses often seen in policies.
Where the two (or more) insurers don’t see eye to eye, for example where the policy wordings have competing clauses, things can become a little more complicated. It is important to always start with the policy wording. Most travel insurance policies will have some sort of clause, the wording for which can vary dramatically, but will tend say something along the lines of the other insurer having to pay up and will lead to the loss being split wither as a rateable proportion.
Prevention is better than cure – and it is worthwhile ensuring your double insurance clauses are up to date.
Mistaken payments - rely on contract law to recover costs
Contract Law plays an important part here. The principle of Mistake refers to a contract being void at common law where the parties to the insurance contract share a mistaken belief. This is rare when it comes to travel insurance contracts.
The more common problem for insurers involves mistaken payments being made to the insured person or a third party. This can be as simple as an overpayment or duplicated payment to an insured person or a hospital.
Mistakes happen. The recipient has been unjustly enriched, and the payment should be returned to the insurer. Failing the amicable return, court proceedings for restitution should be filed without delay. This can be a little trickier (and expensive) where the payment has been made to a foreign recipient.
Where an insurer makes a payment in the mistaken belief that they were continuing to provide cover, and the insured has obtained cover elsewhere, the second insurer is the correct insurer and will need to reimburse the first. The alternative would be to pursue the innocent policyholder for the mistaken payment, and that policyholder would then need to pursue the second insurer.
The insurer is expected to have investigated the claim before making the payment. Where facts later come to light that would have allowed an insurer to decline a claim, had the claim been properly investigated, then this is not a mistaken payment. The extent of investigation will depend on the circumstances of a claim. Where facts have been deliberately concealed (such as an undisclosed relevant pre-existing medical history) then an insurer may be able to rely on setting a settlement aside under the principles of Fraud rather than mistaken payment. I don't have space to go into fraud here, and will need to save that for another time.
There are numerous ways that travel insurers may recover their outlay. There are numerous obligations on policyholders to assist insurers. All of these methods of outlay recovery should all be considered so as to keep policyholders’ premiums down.