Introduction

A contract of insurance is a contract that is made between the insurer and the insured to insured a
subject matter or a property against any damage. However, it should be noted that there are
several principles of insurance. In this assignment will shall discuss the relationship between
subrogation and indemnity and how subrogation supports indemnity.

Subrogation and the doctrine of Indemnity

Subrogation is the right of an insurance company to recover the sum of money of the insurance
claim paid to the insured from the party that caused the damage.

Furthermore, subrogation right is specified in the insurance contracts between the insurers and
the insured. The contract may contain specific clauses that give an insurance company a right to
start the process of recovering the amount of the insurance claim from the party that caused the
damages to the policyholder (insured)1.

The process of the right of subrogation begins when the insurers indemnities the insured over the
loss of insurance claim. When the insured receives the amount for the claim, the insurance
company can now begin the process of recovering the amount of the claim from the party which
caused the damage after conducting investigations. For example, Prince and Francis involved in
a car accident. Because of the accident, Francis’s car is damaged severely and needs k53, 000.00
for repairs. Fortunately, Francis’s car was insured, and recovered the full amount for car repairs
through an insurance claim. Eventually, an investigation shows that the accident was caused due
to Prince’s over speeding. Francis’s insurance company decides to recover the amount of the
claim from prince because he caused the damage. In this situation Francis’s insurance company
can use the subrogation doctrine to recover the amount of its losses. The insurance company can
sue prince to recover its losses while represents the interest of Francis in the court of law.
However, it should be noted that if party that caused or responsible for the damage is covered by
another insurance company, the company will represent the interest of their client. 2

1
Havenga, p & Havenga M, (2004). Commercial Law, (5th). Paarl: Oosterland Paarl.
2
Mumba Malila (2006), Commercial Law .in Zambia: Cases and Materials, Lusaka: UNZA Press
On the other hand It should be noted that most Contracts of insurance are contracts of indemnity.
The Main exception are life insurance, personal accidents insurance and sickness insurance of
the insured. The fundamental rule is there would be practical difficulties in fixing a monetary
value on human life and limb. An insurance contract that is a contract of indemnity means that in
the event of loss resulting from a risk insured against, the insured cannot recover more than his
actual financial loss. The insured should be placed in the same position he/she was in
immediately before the happening of the event insured against3.
How does Subrogation support the doctrine of indemnity?
As explained above that subrogation requires the insurance company to recover the amount of
money paid to insured. Indemnity on the other ensures that the insured does not make profit out
of the insurance policy. It is the right of the insurer who has granted indemnity by paying the
insured’s claim to receive the advantage of every right of the insured against the third parties
which may reduce or extinguishes the insurer’s loss. In this sense therefore, subrogation
vindicates the principle of indemnity. Subrogation is a corollary to the principle of indemnity and
its purpose is to protect the more fundamental principle of indemnity by making impossible for
the insured to make a profit from his insured loss as would have been the case if he were allowed
to collect his loss from the third party responsible for the loss. For example, where an insured
motor vehicle is involved in an accident through the fault of a third party, the insured car owner
would have a cause of action for recovery for the loss suffered. Yet, if he successfully claims on
the policy of insurance, he must subrogate his rights against the third party to the insurer. An
insurer becomes entitled to exercise subrogation rights once a claim is settled and the insured is
indemnified. In exercising his subrogation rights, the insurer is entitled to an amount equal to
what he has paid to the insured4. Any recovery over and above or in excess of the insurer’s
outlay must be handed over to the insured. For example, Malunga buys a motor vehicle for
K100million. He insures it for K50m. In an accident that occurs as a result of Kasanda’s
negligence, the vehicle is damaged beyond economic repair. All that Malunga can claim from
his insurer is the sum insured of K50 million. If the insurers in exercising their subrogation
rights against Kasanda succeed in recovering the full value of the car, namely K100 million, they
are only entitled to keep the sum of K50 million and the balance of K50 million must be handed
over to Malunga. In this regard it is not far-fetched to argue that Malunga in fact is being
3
Mumba Malila (2006), Commercial Law .in Zambia: Cases and Materials, Lusaka: UNZA Press
4
Bradgate (2005). Commercial law ,Oxford: Oxford university press.
unjustly enriched. In John Edwards & Co. v Motor Union Insurance Co. 5 it was held that the
right of an insured person to claim compensation from a third party in tort or contract is not in
any way affected or diminished by the fact of his having received an indemnity from his insurers.
Such an insured person having been indemnified by his insurers may still claim from the third
party, but whatever monies he recovers from the third party must be held by him in trust for the
insurers to the extent of their outlay6.
Conclusion
In conclusion, when an insurance contract is said to be a contract indemnity, it means that in the
event of a loss resulting from a risk insured against, the insured shall be placed in the same
position that he was in immediately before the happening of the event insured against. However,
the principle of subrogation is put in place to support the doctrine of indemnity to make sure that
the insured does not recover more than his loss financial and if he succeeds to recover the money
from the third party, it should be held in trust by the insurer.

Bibliography
5
(1922) 2UB 243
6
Mumba Malila (2006), Commercial Law .in Zambia: Cases and Materials, Lusaka: UNZA Press
Books
Mumba Malila (2006), Commercial Law .in Zambia: Cases and Materials, Lusaka: UNZA Press
Bradgate (2005). Commercial law ,Oxford: Oxford university press.
Havenga, p & Havenga M, (2004). Commercial Law, (5th). Paarl: Oosterland Paarl.
Cases
John Edwards & Co. v Motor Union Insurance Co. (1922) 2UB 243