Subrogation under Japanese Law
Satoshi Nakaide
Professor, Waseda University
LLM(London), Diploma(Cambridge)
nakaide@waseda.jp
Marine Insurance WP
18 September, 2013 Sydney
1 . Governing Law of the Marine Insurance Policy
Inland Hull, Inland Cargo … Japanese law and jurisdiction
Ocean Hull on Japanese Vessel … normally Japanese law
Overseas Cargo … ICC + law and jurisdiction clause
“Notwithstanding anything contained herein or attached hereto to the
contrary, this insurance is understood and agreed to be subject to English
law and practice only as to liability for and settlement of any and all claims.”
Ocean Hull … ITC + law and jurisdiction clauses
Law and Jurisdiction Clauses
“Art.1 English law and practice shall apply as to liability for and settlement of
any and all insurance claims. In all other respects, including issues as to
the existence and validity of this insurance, this insurance is subject to
Japanese law and practice.
Art.2 This insurance shall be subject to the exclusive jurisdiction of the
Tokyo District Court of Japan, except as may be expressly provided herein
to the contrary. ”
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2. Sources of Insurance Law in Japan
Insurance Business
… Insurance Business Law
amended largely in 1995
Insurance Contract … Insurance Law (2008)
covers contracts with insurance company
contracts with mutual aid society, Kyosai
Marine Insurance
… Commercial Code 1899
Book Ⅲ (Maritime Commercial Law)
Chapter 6 (Insurance), Articles 815-841
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Structure of Laws covering Marine Insurance
Marine Insurance
Policy Conditions
Private
agreement
Supervision
Commercial Code 1899
(Book Ⅲ Chapter 6,
Articles 815-841)
FSA
Insurance Law 2008
Insurance Business
Law 1995
Civil Code 1896
Book Ⅲ Chapter 2
Civil Contracts in general
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Insurance Law 2008
… various insurance contracts including mutual aid
and P&I insurance
＊Classification
- non-life insurance contract （indemnity insurance contract)
- accident and illness insurance contract of indemnity basis
- life insurance contract
- fixed return accident and illness insurance contract
＊Scope
＊Nature of the Provision
3 types
- mandatory
- semi-mandatory
not applicable to marine insurance
- discretionary
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3. Subrogation over the Remaining Property
Insurance Law
Article 24: Subrogation over Remaining Property
In the event that the subject matter of insurance is destroyed
in its entirety and an insurer has paid insurance benefits, it
shall, as a matter of course, acquire on behalf of an assured
the title or other real rights retained by such assured in
respect of such subject matter of insurance in accordance
with the proportion of the amount of such insurance benefits
to the insurable value (agreed insurable value, of any).
cf: Commercial Code Article 833-841
Abandonment in marine insurance
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Subrogation over the Remaining Property
① insurance payment for total loss
Assured
Insurer
② property
cf: Abandonment
① property
Insurer
Assured
② insurance payment for total loss
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Subrogation over the Remaining Property
<Rationale>
- prevention of unjust enrichment
- quick payment of insurance money
<Points>
- Applicable only to total loss including total loss in part
- Transfer occurs as a matter of course.
No need for the insurer to show his intention
- Transfer occurs at the time of insurance payment.
- Semi-mandatory provision which does not permit alteration
against the benefit of the assured
Insurer may waive his right.
For marine insurance, Art. 24 is discretional.
- In case of under insurance ⇒ proportionate transfer
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Practices : Subrogation over the Remaining Property
<Insurance Clause>
Both hull and cargo insurance clauses modify the insurance law.
- The property will not transfer to the insurer unless the insurer
expresses his intention to acquire the property.
- Where the assured claims for a total loss, he must notify the
insurer of any liability, lien, debt or other duty and must clear
or remove these at the cost of the assured.
Cf Abandonment
- The right of abandonment is denied under Japanese marine
policy. Insurers treat constructive total loss (under English
law) as a total loss without requiring abandonment.
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Legal Issues : Subrogation over the Remaining Property
<Controversial Point>
- It is not clear whether the insurer may waive his right of
subrogation over the remaining property where the assured
might gain more than his loss by the insurer’s waiver, such as
where the lost cargo is discovered later and returned to the
assured.
* Does it create a situation of unjust enrichment?
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4. Subrogation against Third Party
Insurance Law Article 25: Right of Subrogation against Third Party
(1) In the event that an insurer has paid insurance benefits, it shall, as a matter of
course, acquire on behalf of the assured the claims to be obtained by the assured as
a result of damage due to insurable contingencies (as regards a non-life insurance
contract under which damage that may arise on certain claims from default or
otherwise is to be covered, such claims shall be included; hereinafter referred to as
the ‘assured’s claims’), to the extent of lesser of:
(a) the amount of insurance benefits paid by such insurer; or
(b) the amount the assured’s claims (if the amount mentioned in the preceding item is
less than the amount of damage to be covered, the amount remaining after
deducting from the amount of the assured’s claims such deficiency).
(2) If, in the case of the preceding paragraph, the amount mentioned in item 1 of the said
paragraph is less than the amount of damage to be covered, an assured shall be
entitled to receive repayment of the assured’s claims except for the portion acquired
by an insurer on behalf of the assured in accordance with the provisions of the said
paragraph, in priority to the claims of the insurer thus acquired.
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Subrogation against Third Party
Assured
50% liable
loss 1000
②Insurance
claim 800
① right for compensation 500
Third Party
50% liable
⑤ compensation 200
③Insurance
payment
800
④subrogation
claim 300
⑥payment
300
＊under
insurance of 80 %
insured amount / insured value
insurer
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Subrogation against Third Party
<Rationale>
- prevention of unjust enrichment
- not reducing the liability of the wrongful third party
- quick payment of insurance money
<Points>
- semi-mandatory provision
- The assured’s right outweighs the insurer’s right.
- Transfer occurs as a matter of course.
No need for the insurer to show his intention
- Insurer acquires the right up to the amount of his payment.
- Insurer is able to sue the third party in his own name.
- Assured loses his right for claim against third party to the
extent of the compensation made by the insurer. This is so
even where the insurer does not exercise his subrogation
right against third party (Supreme Court Decision).
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Practices in Marine Insurance :
Subrogation against Third Party
<Insurance Clause>
Both hull and cargo insurance clauses impose certain duty on the assured
but do not modify the insurance law on subrogation substantially.
The insurer imposes a duty on the assured to secure his right against the
third party and provide necessary assistance to the insurer in respect of the
insurer’s claim against third party. Expenses incurred in fulfilling this
obligation are payable by the insurer.
* No stipulation of the effect of violation of this duty
<Procedures>
On paying insurance claim, the insurer asks the assured to submit the
subrogation form in which the assured confirms the transfer of his right to
the insurer as well as his duty to provide information and assistance to the
insurer in pursuing recovery action.
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Legal Issues : Subrogation against Third Party
< Controversial Point 1 >
- Under the Law and Jurisdiction Clause, governing law on
subrogation is not clear.
Is subrogation regarded as a matter of “liability and settlement
of claim” ?
In English law, the title to sue remains on the assured,
whereas under Japanese law the title transfers from the
assured to the insurer upon payment.
Sometimes the responsible third party denies liability against
the insurer’s claim, arguing that the insurer has no title to sue
under English law.
Insurer sometimes asks the assured to assign his right against
the responsible party to the insurer to protect him against this
uncertainty.
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Legal Issues : Subrogation against Third Party
< Controversial Point 2 >
- Apportionment of recovery
-
Under Japanese Insurance Law, the right of assured outweighs the right of
insurer. It is not certain how the apportionment of recovery money will be
in the case like English Lord Napier case (House of Lords adopted the top
down method in the liability insurance of layers).
It is arguable whether English law applies to the ocean marine policy as it
is an issue of liability under the law and jurisdiction clause.
In the case of limitation of liability, can assured recover for his uninsured
loss preferentially?
Ship owner
Uninsured loss
Insurer’s
payment
?
Compensation fund
is limited by law or
in fact.
Does “Kongruenzprinzip” harmonize with the assureds’
priority principle?
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Legal Issues : Subrogation against Third Party
< Controversial Point 3 >
- Under Japanese law on tort, the victim may claim interest on
his damages from the time of the tort. It is not clear whether
the responsible party must pay the interest of damages in
respect of the period from the time of the accident to the time
of insurance payment to the insurer who becomes to be the
claimer from the time of insurance payment by subrogation.
Does the insurer subrogate to the right of the assured at the
time of the accident or at the time of his insurance payment?
claims in
tort
(damages)
time of
casualty in tort
Interest allowable in law for commercial claim is 6%
time of ins. payment
settlement by third party
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Legal Issues : Subrogation against Third Party
< Controversial Point 4 >
-
The insurer may agree to the waiver of subrogation with the assured in
return for receiving an additional premium. In such a situation, can the
assured receive both insurance payment and compensations for his loss
from the liable third party so long as the aggregate amount of various
losses is larger than the amount of insurance payment and compensation
from the third party?
The assured may argue that the double compensations in such a situation
does not create a situation of unjust enrichment and that the insurer should
not be benefited because he has received an extra premium for it.
Insurance payment
Losses suffered by assured
Compensation from
third party
END
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