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Date: Mon, 24 Nov 2003 13:44:48 -0500 From: Jason Neyers Subject: Insurance in the law
I post this on behalf of Paul Michalik: From an insurance practice point of view, it is highly counter-productive for a Court to deny recovery from a third party who has caused material damage on the basis that the risk is one against which the injured person can insure. Even if the injured party has insured, the insurance company that pays the claim will wish to recover from the party at fault (or the party legally responsible in the case of no-fault or strict liability such as is imposed under the Rylands v Fletcher principle). Such "recovery actions" are taken by insurance companies in the names of their insureds every day, on the basis that, having paid the claim the companies are subrogated to the insured's rights. To say the insured has no such rights, on the basis that his or her insurance should take care of it denies the company the ability to use its rights of subrogation to "close the loop" and both sheet liability home to the person best able to take precautions (which is regarded as likely to be the most economically efficient outcome) and also cuts the insurance company off from its third major source of revenue. (Recoveries are the third major source of insurance funding, after investment income and premium charges. Particularly in a competitive market, success or failure in managing recoveries is very likely to make the difference between profit and loss in any given year.) Restricting access to recovery actions reduces the pool of funds available to pay losses, and pressures an already stretched insurance market. These facts provide important practical reasons why insurance has traditionally been "invisible" to the English common law courts. It really shouldn't matter for the law who has insurance and who could have it, as the long-established mechanism of subrogation gives rise to recovery actions taken by the company in the name of the insured and whether there is insurance or not, liability comes home to where it "belongs". If it doesn't belong on one head or another, then, pace Lord Hoffman, the reasons it does not so belong should be found in the practicalities of who ought to be responsible, as in who should be given the incentive to manage the risks inherent in the activity, and not in the idea that insurance should be encouraged. The buck does not, and usually should not stop at the "material damage" insurer's doorstep. In fact, given the high costs of bringing an action, the transfer of the risk "to others by means of litigation" is far more likely to take place with insurance cover than without it. A paying insurance company will sue to recover where an insured may not have done so personally. (This commonly has the practical effect of merely passing the loss on to the "liability" insurer of the wrongdoer. :-) But that's another story, and another premium pool) The company is more likely to sue as it has the means, the expertise, the contacts and the experience that teach it how to make the most of its situation through litigation. Insurers are repeat players in our courts. Most insureds are not. I haven't read the case, but given the high cost of the litigation as quoted, given that a subrogated recovery action is taken in the name of the insured, given that the fact of the insurer's involvement is not usually disclosed, and given the fact as mentioned by Andrew, that any policy of insurance against material damage to property will include cover for the sort of inundation that was at issue in the case, it is at least possible that Lord Hoffman was in fact talking to Counsel employed by an insurer when he recommended aloud in his judgment that people should look to their insurers and not go off and sue other people. It may well be that this is exactly what the named plaintiff has done, thereby entitling its insurer to choose not to rest content with paying out, but to pick up and use its name for its subrogated recovery action. Paul
Michalik
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