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Subrogation – hooray! the KZN court gets it right

23 November 2010 Deneys Reitz
Sandra Sithole,  Associate, Deneys Reitz Inc.

Sandra Sithole, Associate, Deneys Reitz Inc.

Three months after the controversial judgment of Nkosi v Mbatha 2010 JDR 0839 (KZP) the KwaZulu-Natal Provincial Appeal Court was recently presented with yet another opportunity to rule on the issue of subrogation in Des O Smith v A K Banjo (AR290/10) [2010] ZAKZPHC. This time they got it right.

The decision of Patel DJP in Des O Smith v A K Banjo overrules Nkosi v Mbatha which found a plaintiff not to have legal standing to institute the proceedings because she had been indemnified by the insurer and had, therefore, not suffered any loss. The court incorrectly found that subrogation “is something which must clearly be proved and specifically pleaded”. That judgment would, if left unchecked, have had a profound effect on insurers pursuing subrogated recovery actions in KwaZulu-Natal.

The proper interpretation as set out in the Rand Mutual Assurance Company v Road Accident Fund case is that the only time where subrogation has to be proved and pleaded is where the insurer proceeds against the third party in its own name under the doctrine of subrogation. The same does not apply where the insurer proceeds by subrogation but in the name of the insured. Since subrogation does not affect the rights or duties of either the plaintiff or defendant in a subrogated action where the insurer sues in the name of the insurer, subrogation does not need to be pleaded. It becomes irrelevant whether the claim has been subrogated since, for all intents and purposes, the insure steps into the shoes of the insured.

Subrogation as a doctrine of insurance has been said to “embrace a set of rules providing for the reimbursement of an insurer which has indemnified its insured under a contract of indemnity insurance. The gist of the doctrine is the insurer’s personal right of recourse against its insured, in terms of which it is entitled to reimburse itself out of the proceeds of any claims that the insured may have against third parties in respect of the loss”. The personal right is against the insured and not the third party. The insurer exercises this personal right by enforcing the insured’s claim against the third party.

In the present case, the plaintiff owner of the insured vehicle instituted action against the defendant for damages sustained to the vehicle in a motor vehicle collision. The vehicle was insured in the name of Des Smith Family Trust (“the trust”) who together with the plaintiff bore the risk of loss or damage to the vehicle. The only issue for determination before the trial court was whether the plaintiff had legal standing to institute an action for damages arising from the collision on the grounds that he owned the vehicle, notwithstanding that the insured policyholder was the trust.

The appeal court found that it was unnecessary to consider whether this matter involved a subrogated claim as the question of subrogation is a collateral issue irrelevant to the defendant. However, the court did confirm some of the useful guidelines and the general principles of subrogation enunciated in the landmark decision of Rand Mutual Assurance Co Ltd v Road Accident Fund.

The court criticised the judgment in Nkosi v Mbatha which it found to be “clearly wrong” and “not binding on future courts”. The court drew authority from the case of Ntlhabayane v Black Panther Trucking (Pty) Ltd for the proposition that where an insurer, under its rights of subrogation, institutes action in the name of the insured, there is no duty on the plaintiff to prove subrogation. That case also confirmed that subrogation does not affect the plaintiff’s legal standing to institute the action.

In Nkosi v Mbatha the insurer had instituted action against the defendant for damages sustained to the plaintiff’s vehicle in a motor collision. It was contended on behalf of the defendant that the plaintiff did not have any legal standing because she had been indemnified by the insurer and had not suffered any loss. The trial court incorrectly found the plaintiff not to have had the requisite legal standing to institute the action. The basis for that finding was that the plaintiff had failed to disclose that the claim was a subrogated one which required clear proof and had to be specifically pleaded.

The facts in Nkosi differed from the present case in that, in the present case, the plaintiff whilst being the owner of insured vehicle was not the insured party. Usually, in cases of this nature, the plaintiff is both the owner of the insured vehicle and the insured party. The appeal court found that in terms of the principles of the Aquilian action, the plaintiff’s ownership of the insured vehicle establishes a direct interest of the patrimonial value of the vehicle which is sufficient to establish legal standing to sue.

In so far as the proper requirements for pleading a cause of action are concerned, the appeal court correctly found that the involvement of the insurer in a lawsuit is irrelevant and it is, therefore, not necessary to plead such involvement.

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