FOR EDUCATIONAL USE ONLY
(c) Sweet & Maxwell Limited
Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd
(QBD (Comm Ct)) Commercial Court
14 April 1961
Where Reported
Summary
Cases Cited
Legislation Cited
Citations to the Case
Where Reported
[1962] 2 Q.B. 330
[1961] 2 W.L.R. 1043
[1961] 2 All E.R. 487
[1961] 1 Lloyd's Rep. 479
(1961) 105 S.J. 367
Summary
Subject: Insurance
Keywords: Insurance claims; Ships; Subrogation
Catchphrases: Marine insurance; subrogation
Abstract: Where an insurer pays for a total loss of the subject-matter insured and the assured, in
exercise of his remedies in respect of the subject- matter, recovers from a third party an amount
which exceeds the sum so paid by the insurer, the insurer cannot recover from the assured the
amount of such excess. A vessel was an actual total loss as a result of a collision and the insurers
paid the owners the sum in which it was insured, which was slightly less than its value. The
owners sued the owner of the ship with which it collided and recovered considerably more than
the value of the ship as a result of the revaluation of the pound against the dollar.
Summary: Held, the owners need not reimburse to the insurers any more than the insurers
had actually paid them (Castellain v Preston (1883) 11 Q.B.D. 380 applied; North of England
Iron Steamship Insurance Association v Armstrong (1870) L.R. 5 Q.B. 244 explained).
Judge: Diplock, J.
Cases Cited
Castellain v Preston, (1882-83) L.R. 11 Q.B.D. 380 (CA)
North of England Steamship Insurance Association v Armstrong, (1869) L.R. 5 Q.B. 244 (QB)
Legislation Cited
Marine Insurance Act 1906 s. 63
Marine Insurance Act 1906 s. 79
Marine Insurance Act 1906 Sect.79
Citations to the Case
Applied by
H Cousins & Co v D&C Carriers, [1971] 2 Q.B. 230; [1971] 2 W.L.R. 85; [1971] 1 All E.R. 55;
[1970] 2 Lloyd's Rep. 397; (1970) 114 S.J. 882 (CA)
Considered by
Lucas (L) v Export Credits Guarantee Department, [1973] 1 W.L.R. 914; [1973] 2 All E.R. 984;
[1973] 1 Lloyd's Rep. 549; (1973) 117 S.J. 506 (CA)
Morris v Ford Motor Co, [1973] Q.B. 792; [1973] 2 W.L.R. 843; [1973] 2 All E.R. 1084; [1973]
2 Lloyd's Rep. 27; (1973) 117 S.J. 393 (CA)
END OF DOCUMENT
Copr. (c) West 2001 No Claim to Orig. Govt. Works
FOR EDUCATIONAL USE ONLY
*479 Yorkshire Insurance Company, Ltd. v. Nisbet Shipping Company, Ltd.
Queen's Bench Division (Commercial Court)
QBD (Comm Ct)
Apr. 11, 12, 13, 14, 1961
Before Mr. Justice Diplock
Marine insurance -- Subrogation -- Total loss paid by insurer under a valued policy-- Greater
sum recovered by assured from third-party--Right of insurer to recover excess from assured-Marine Insurance Act, 1906, Sect. 79 (1).
Valued policy effected by defendant assured with plaintiff insurer on assured's steamship
Blairnevis--Blairnevis valued in policy at << PoundsSterling>>72,000 -- Total loss of Blairnevis
as the result of collision with H.M.C.S. Orkney, in February, 1945-- Value of Blairnevis at time
of loss was <<PoundsSterling>>75,514 9s. 11d. (336,039.52 dols.)-- Assured paid <<
PoundsSterling>>72,000 by insurer -- In September, 1946, assured instituted proceedings in
Canada (with consent of insurer) against Canadian Government for damages for loss of
Blairnevis--Damages (336,039.52 dols.) paid to assured in Canada in 1958--Consequent on
devaluation of sterling in 1949, 336,039.52 dols. realized <<PoundsSterling>>126,971 14s. 11d.
when converted into << PoundsSterling>> in London -- Claim by insurer to full amount received
by assured--Contention by assured that it was entitled to retain all moneys in excess of
<<PoundsSterling>>72,000 -- Construction of Marine Insurance Act, 1906, Sect. 79 (1), which
provided:
Where the insurer pays for a total loss, either of the whole, or in the case of goods of any
apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over the
interest of the assured in whatever may remain of the subject-matter so paid for, and he is
thereby subrogated to all the rights and remedies of the assured in and in respect of that subjectmatter as from the time of the casualty causing the loss.
Held,
(1) that by the doctrine of subrogation terms were implied in a contract of marine insurance to
ensure that, although the insurer had made a payment under the policy, the assured should not be
entitled to retain, as against the insurer, a greater sum than his actual loss, and it was also an
implied term that, when possible, the assured should exercise remedies against third parties
to*480 reduce the amount of the loss (upon indemnification by the insurer against costs); that, in
an action brought in the name of the assured it was the assured who recovered judgment against
the third party and that judgment could only be satisfied by payment to the assured; that, when he
received it, the insurer could recover from him, as moneys had and received, such sum as he had
overpaid to the assured;
(2) that Sect. 79 (1) meant that the insurer was entitled, as against the assured, to the benefit of
the assured's rights and remedies against third parties to the extent indicated in (1) above; that,
accordingly, the insurer's rights were limited to recovering any sum which he had overpaid; and
that, therefore, where an insurer paid for a total loss of the subject-matter insured and the
assured, in the exercise of his remedies in respect of the subject-matter, recovered from a third
party an amount which exceeded the sum so paid by the insurer, the insurer could not recover
from the assured the amount of such excess, and therefore, the insurer was entitled to <<
PoundsSterling>>72,000, and no more.
--North of England Iron Steamship Insurance Association v. Armstrong and Others, (1870) L.R.
5 Q.B. 244, considered and not applied.
The following cases were referred to:
Attorney-General v. Glen Line, Ltd., and Liverpool & London War Risks Association, Ltd.,
(1930) 37 Ll.L.Rep. 55; (1930) 36 Com. Cas. 1;
Bank of England v. Vagliano Brothers, [1891] A.C. 107;
Boag v. Standard Marine Insurance Company, Ltd., [1937] 2 K.B. 113; (1937) 57 Ll.L.Rep. 83;
British and Foreign Marine Insurance Company, Ltd. v. Samuel Sanday & Co., [1916] 1 A.C.
650;
Burnand v. Rodocanachi, Sons & Co., (1882) 7 App. Cas. 333;
Castellain v. Preston and Others, (1883) 11 Q.B.D. 380;
Celia (Owners) v. Volturno (Owners), [1921] 2 A.C. 544; (1921) 8 Ll.L.Rep. 449;
Goole and Hull Steam Towing Company, Ltd. v. Ocean Marine Insurance Company, Ltd.,
[1928] 1 K.B. 589; (1927) 29 Ll.L.Rep. 242;
King v. Victoria Insurance Company, Ltd., [1896] A.C. 250;
Livingstone, (1904) 130 Fed. 746;
North of England Iron Steamship Insurance Association v. Armstrong and Others, (1870) L.R. 5
Q.B. 244;
St. Johns, (1900) 101 Fed. 469;
Simpson & Co. v. Thomson, Burrell, (1877) 3 App. Cas. 279;
Thames and Mersey Marine Insurance Company v. British and Chilian Steamship Company,
[1915] 2 K.B. 214; (1915) 21 Com. Cas. 150;
Volturno, [1921] 2 A.C. 544; (1921) 8 Ll.L.Rep. 449;
West of England Fire Insurance Company v. Isaacs, [1897] 1 Q.B. 226.
In this action, the plaintiffs, Yorkshire Insurance Company, Ltd., (also representing other
insurers) claimed that they were entitled to moneys received by the defendants, Nisbet Shipping
Company, Ltd., from the Canadian Government in respect of the loss of the defendants'
steamship Blairnevis as the result of a collision with H.M.C.S. Orkney, in 1945. The plaintiffs
paid a total loss ( <<PoundsSterling>>72,000) on a valued policy on the Blairnevis whose actual
value at the time of loss was <<PoundsSterling>>75,514 (or 336,059 dols., at 4.45 dols. to the
<<PoundsSterling>>, which was the rate of exchange operating at that time).
The defendants recovered 336,039 dols. --as the value of the lost ship--in 1959 from the
Canadian Government, whom they sued as owners of H.M.C.S. Orkney. By "selling" the dollars
at the 2.639 dols. to the <<PoundsSterling>> exchange rate, the defendants obtained over
<<PoundsSterling>>120,000.
The plaintiffs sought a declaration that they were entitled to a proportion of that sum.
The defendants denied this and claimed that the underwriters were only entitled to
<<PoundsSterling>>72,000--the value of the policy--which they had paid to the defendants after
the loss of the ship. The <<PoundsSterling>> 72,000 had been repaid to the underwriters.
The defendants denied that they had been acting as the plaintiffs' agents or trustees in recovering
damages from the Canadian Government.
The value of the policy, in dollars, was 320,400 dols. when exchanged at the 4.45 dols. to the
<<PoundsSterling>> rate. It had been agreed that that was the rate at all material times up to the
devaluation of sterling in September, 1949.
According to the plaintiffs' points of claim, on Feb. 13, 1945, the Blairnevis was in collision with
H.M.C.S. Orkney. As a result of the collision the Blairnevis became a total loss.
*481 On Sept. 19, 1946, the defendants instituted proceedings against the Crown as owners of
H.M.C.S. Orkney in the Exchequer Court of Canada. As a result of those proceedings, the
defendants, in May, 1959, received from the Canadian Government damages amounting to
350,000 dols., of which 336,039.52 dols. were attributable to the value of the Blairnevis.
336,039.52 dols. converted at 2.639 dols. to the <<PoundsSterling>> was equivalent to <<
PoundsSterling>>126,971 14s. 11d.
By a policy of marine insurance dated Aug. 4, 1944, the plaintiffs and other insurers insured the
defendants against loss or damage to the Blairnevis by perils of the sea in the sum of
<<PoundsSterling>>36,888 on the terms and conditions therein contained. The Blairnevis was
valued in the policy at << PoundsSterling>>72,000, which converted at 4.45 dols. to the <<
PoundsSterling>>, was equivalent to 320,400 dols.
As a result of the loss of the Blairnevis, the plaintiffs became liable to pay the defendants the full
amount of their subscription to the policy, namely <<PoundsSterling>>2523, and the plaintiffs
paid that sum to the defendants on Apr. 20, 1945.
The plaintiffs said that on paying for the total loss of the Blairnevis they became entitled to take
over pro tanto the interest of the assured in the subject-matter insured and were subrogated pro
tanto to all the rights and remedies of the assured in and in respect of the subject-matter, under
Sect. 79 (1) of the Marine Insurance Act, 1906. The plaintiffs alleged that the defendants, in
recovering damages from the Canadian Government for the loss of the Blairnevis, were acting
pro tanto as agents of the plaintiffs and/or on the instructions and/or with the agreement or
approval of the plaintiffs and were bound to account to the plaintiffs pro tanto for the sums so
recovered. The plaintiffs further alleged that the defendants were trustees pro tanto of the sums
so recovered for the plaintiffs.
The plaintiffs alleged that they were entitled to receive such proportion of that sum of
<<PoundsSterling>>126,971 14s. 11d. as the amount of their subscription to the policy bore to
the insured value of the Blairnevis; or that they were entitled to receive that proportion of such
part of the sum of << PoundsSterling>>126,971 14s. 11d. as was to the whole in the proportion
of << PoundsSterling>>72,000: <<PoundsSterling>>75,514 9s. 11d. In the alternative, the
plaintiffs alleged that they were entitled to receive that proportion of
<<PoundsSterling>>121,409 12s. 5d. (being 320,400 dols. converted at 2.639 dols. to the
<<PoundsSterling>>). In the further alternative, the plaintiffs alleged that they were entitled to
receive that proportion of << PoundsSterling>>72,000.
By their defence, the defendants admitted that they were bound to account to the plaintiffs out of
the sums recovered as damages from the Canadian Government for the amount of the plaintiffs'
subscription to the policy less their proportion of costs as set out in an average statement made
by A. H. May & Son dated Nov. 15, 1958. The balance of that amount, namely, <<
PoundsSterling>>404 4s. 9d., was tendered and/or paid to the plaintiffs on or about Dec. 5, 1958,
but the defendants denied that in recovering their damages, they were acting pro tanto as agents
of the plaintiffs.
Representation
Mr. A. A. Mocatta, Q.C., and Mr. C. T. Bailhache (instructed by Messrs. Ince & Co.) represented
the plaintiffs; Mr. Eustace Roskill, Q.C., and Mr. Anthony Lloyd (instructed by Messrs. Holman,
Fenwick & Willan) represented the defendants.
JUDGMENT
Mr. Justice DIPLOCK:
The defendant company, whom I shall call the assured, were at all material times the owners of
the steamship Blairnevis. The plaintiff company and other insurers insured the defendant
company against loss of or damage to the Blairnevis by marine risks for a period of 12 months
from June 27, 1944, in a policy of marine insurance, in the common form of hull policy of the
Institute of London Underwriters. The policy is for the sum of <<PoundsSterling>>36,888, of
which the amount underwritten by the plaintiff company is << PoundsSterling>>2523. The
Blairnevis is valued in the policy at << PoundsSterling>>72,000. The balance of the sum of
<<PoundsSterling>>72,000 was fully covered by other policies of marine insurance in similar
terms to the said policy. I refer to the plaintiffs and the other subscribers to the said policy and
the other policies collectively as the insurer.
On Feb. 13, 1945, during the currency of the policy, the Blairnevis was damaged in a collision
with Her Majesty's Canadian Ship Orkney in the Irish Sea, and later on the same day she was
beached near the mouth of the River Mersey. On Feb. 15, 1945, the assured gave notice of
abandonment of its interest in the Blairnevis and claimed payment for a total loss. The notice of
abandonment was not accepted.
The Blairnevis became an actual total loss with no salvage value and on Apr. 20, 1945, the
insurer paid the assured the*482 <<PoundsSterling>>72,000 for the total loss of the vessel. The
plaintiff company paid the full amount of its subscription to the policy. On Sept. 19, 1946, the
assured, with the approval of the insurer, commenced proceedings in Canada against the
Canadian Government for damages for the loss of the Blairnevis. Its claim was quantified in
Canadian dollars. The proceedings, which went to the Privy Council, were protracted and on July
25, 1955, the Privy Council ( [1955] 2 Lloyd's Rep. 173) restored the judgment of the Exchequer
Court of Canada, of July 20, 1951, which held that H.M.C.S. Orkney was solely to blame, and
set aside the judgment of the Supreme Court of Canada, who had varied the judgment of the
Exchequer Court on appeal, on an issue of limitation of liability only.
Negotiations then took place as to quantum of damages, in the course of which it was agreed that
the actual value of the Blairnevis at the time of loss was <<PoundsSterling>>75,514 9s. 11d.
Applying the principle laid down in the House of Lords in Celia (Owners) v. Volturno (Owners),
[1921] 2 A.C. 544, at p. 554; (1921) 8 Ll.L.Rep. 449, at p. 451, this sum was converted into
dollars at the rate of exchange of 4.45 dols. to the <<PoundsSterling>>, current at the date of the
collision in 1945, giving a sum in Canadian dollars of 336,039.52 dols. This sum was paid to the
assured in Canada in May, 1958. But, in 1949, the <<PoundsSterling>> had been devalued.
Consequently, when the 336,039.52 dols. were transmitted to England in June, 1958, they were
converted into <<PoundsSterling>> at the new rate of exchange and in fact realized <<
PoundsSterling>>126,971 14s. 11d.; that is nearly <<PoundsSterling>>55,000 more than the
<<PoundsSterling>>72,000 which the insurer had paid for the total loss in April, 1945, and some
<<PoundsSterling>>51,000 more than the sterling value of the Blairnevis at the date of the loss.
This action raises the neat point as to who is entitled to this windfall. The assured has accounted
to the insurer for the sums received upon the basis that it is entitled to retain all moneys in excess
of the <<PoundsSterling>>72,000 in fact paid to the assured under the policies by the insurer.
The insurer claims to be entitled to the full amount received by the assured. By agreement
between the parties I can ignore for the purposes of this judgment the costs incurred in the
litigation between the assured and the Canadian Government. They have agreed between
themselves as to the way in which these will be dealt with, depending upon the ultimate decision
in this action upon the question of principle involved. I therefore will deal with the matter on the
basis that the assured, in 1958, received from the Canadian Government, the tortfeaser
responsible for the loss of the Blairnevis, the net sum of <<PoundsSterling>> 126,971 14s. 11d.,
and repaid to the insurer the sum of <<PoundsSterling>> 72,000, which was paid to the assured
by the insurer for the total loss of the vessel in 1945.
The question of principle involved can, I think, be stated thus: Where an insurer pays for a total
loss of the subject-matter insured and the assured, in the exercise of his remedies in respect of
that subject-matter, recovers from a third party an amount which exceeds the sum so paid by the
insurer, can the insurer recover from the assured the amount of such excess?
I turn first, as is my duty, to the Marine Insurance Act, 1906, Sect. 79 of which deals with the
rights of the insurer on payment. Sub-s. (1) is in the following terms:
Where the insurer pays for a total loss, either of the whole, or in the case of goods of any
apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over the
interest of the assured in whatever may remain of the subject-matter so paid for, and he is
thereby subrogated to all the rights and remedies of the assured in and in respect of that subjectmatter as from the time of the casualty causing the loss.
It is to be noted that the sub-section, which comes into operation only upon payment for the total
loss by the insurer, deals with two distinct matters: (1) the interest of the assured in the subjectmatter insured, and (2) the rights and remedies of the assured in and in respect of that subjectmatter. The former, the insurer, is entitled although not bound to take over; if he does, the whole
interest of the assured in the subject-matter insured is transferred to him. To the rights and
remedies of the assured in respect of the subject- matter insured, with which alone I am
concerned in this case, the insurer is "subrogated as from the time of the casualty causing the
loss." In my view, this case turns upon what is meant by the word "subrogated" in this context.
The doctrine of subrogation is not restricted to the law of insurance. Although often referred to
as an "equity" it is not an exclusively equitable doctrine. It was applied by the Common Law
Courts in insurance cases long before the fusion of Law and Equity, although the powers of
the*483 Common Law Courts might in some cases require to be supplemented by those of a
Court of Equity in order to give full effect to the doctrine; for example, by compelling an assured
to allow his name to be used by the insurer for the purpose of enforcing the assured's remedies
against third parties in respect of the subject-matter of the loss.
In his classic judgment in Castellain v. Preston and Others, (1883) 11 Q.B.D. 380, at p. 386,
Lord Justice Brett was dealing with an unvalued policy but for the purpose of analysing the
principle I can at the present stage ignore the complication which arises when the policy is a
valued one. Lord Justice Brett based the application of the doctrine of subrogation to policies of
insurance upon the fundamental principle
. . . that the contract of insurance contained in a marine or fire policy is a contract of indemnity,
and of indemnity only, and that this contract means that the assured, in case of a loss against
which the policy has been made, shall be fully indemnified, but shall never be more than fully
indemnified. . . .
The expression "subrogation" in relation to a contract of marine insurance is thus no more than a
convenient way of referring to those terms which are to be implied in the contract between the
assured and the insurer to give business efficacy to an agreement whereby the assured in the case
of a loss against which the policy has been made shall be fully indemnified, and never more than
fully indemnified.
Two consequences flow from this: First, "subrogation" is concerned solely with the mutual rights
and liabilities of the parties to the contract of insurance. It confers no rights and imposes no
liabilities upon third parties who are strangers to that contract. It vests in the insurer who has paid
a loss no direct rights or remedies against anyone other than the assured. He cannot sue such
parties in his own name (see Simpson & Co. v. Thomson, Burrell, (1877) 3 App. Cas. 279); he is
bound by any release given by the assured to a third party (see West of England Fire Insurance
Company v. Isaacs, [1897] 1 Q.B. 226). The insurer's rights against the assured cannot be
affected by any subsequent contract, or dealings between the assured and a third party. ( Boag v.
Standard Marine Insurance Company, Ltd., [1937] 2 K.B. 113, (1937) 57 Ll.L.Rep. 83, and West
of England Fire Insurance Company v. Isaacs, sup.)
It seems to me to follow that the only terms to be implied to give business efficacy to the
contract between the parties are those necessary to secure that the assured shall not recover from
the insurer an amount greater than the loss which he has actually sustained. The insurer has
contracted to pay to the assured the amount of his actual loss. If, before the insurer has paid
under the policy, the assured recovers from some third party a sum in excess of the actual
amount of the loss he can recover nothing from the insurer because he has sustained no loss, but
it has never been suggested that the insurer can recover from the assured the amount of the
excess.
It is difficult to see why a term should be implied in a contract of insurance which would involve
a fundamentally different result merely because the insurer had already paid for the loss under
the policy before the assured had recovered any sum from the third party.
In my view, the doctrine of subrogation in insurance law requires one to imply in contracts of
marine insurance only such terms as are necessary to ensure that notwithstanding that the insurer
has made a payment under the policy the assured shall not be entitled to retain, as against the
insurer, a greater sum than what is ultimately shown to be his actual loss. As Lord Justice Cotton
said in Castellain v. Preston and Others, sup., at p. 395:
. . . if there is a money or any other benefit received which ought to be taken into account in
diminishing the loss or in ascertaining what the real loss is against which the contract of
indemnity is given, the indemnifier ought to be allowed to take advantage of it in order to
calculate what the real loss is. . . .
Thus, if after payment by the insurer of a loss that loss, as a result of an act of a third party, is
reduced, the insurer can recover from the assured the amount of the reduction because that is the
amount which he, the insurer, has overpaid under the contract of insurance. This sum he can
recover at Common Law, without recourse to Equity, as money had and received. (See Bullen &
Leake, 3rd ed., at p. 187.) It is immaterial in what way the loss has been reduced, or whether it
has been reduced after the casualty but before the actual date of payment; if the insurer has paid
more than the actual loss he can recover from the assured as money had and received the amount
of the overpayment.
*484 It is also an implied term of the contract that if it is within the power of the assured to
reduce the amount of the loss for which he had received payment from the insurer, by exercising
remedies against third parties, he must do so upon being indemnified by the insurer against the
costs involved. Since such remedies are personal to the assured they must be exercised in his
own name. As the Common Law provides no method by which a person can be compelled to
bring legal proceedings against another, recourse was needed by the insurer before the Judicature
Acts to Chancery to compel the assured to allow his name to be used for legal proceedings
against third parties in order to reduce the loss. But the duty of the assured to take proceedings to
reduce his loss and the correlative right of the insurer to require him to do so was a contractual
duty. The remedy for its breach, by compelling the assured to allow an action to be brought in his
name, was an equitable remedy in aid of rights at Common Law, and was alternative to the
Common Law remedy of recovering damages for breach of the duty. (See West of England Fire
Insurance Company v. Isaacs, sup.) But in the action brought in the name of the assured pursuant
to the equitable remedy it is the assured who recovers judgment against the third party, and the
judgment can be satisfied only by payment to him. When he receives it, the insurer can recover
from him at Common Law, as money had and received, such sum as he has overpaid to the
assured under the contract of insurance.
In my opinion, the words "he is thereby subrogated to all the rights and remedies of the assured
in and in respect of that subject-matter as from the time of the casualty causing the loss" mean
that he is entitled, as against the assured, to the benefit of the assured's rights and remedies
against third parties to the extent which I have indicated above as constituting the rights of the
insurer under those implied terms of the contract of insurance which are connoted by the
expression "subrogation" in the law applicable to policies of insurance. This seems to me to be
the natural meaning of the words. If it be right, the insurer's rights under the second part of the
sub-section, with which I am alone concerned, are limited to recovering any sum which he has
overpaid; he cannot recover more than he has in fact paid.
It has, however, been argued that if this meaning is to be given to the expression "subrogated"
the words at the end of sub-s. (2) (which relates to partial loss)-- "in so far as the assured has
been indemnified, according to this Act, by such payment for the loss"--would be unnecessary
since on the view which I have expressed this is implicit in the use of the word "subrogated "
itself. It may well be that the effect of sub-s. (2) would be the same if those words were omitted;
but it is in relation to partial loss that questions normally arise as to the quantum of the insurer's
right of subrogation. It can be very rarely--the present is indeed the first recorded case--that it
can arise in cases of total loss. It may well be that Parliament inserted those words in sub-s. (2)
per majorem cautelam, dealing with a situation in which the problem was likely to arise. Their
absence in a sub-section dealing with a situation in which the problem had never arisen before
1906 and has not in fact arisen until 1961 does not seem to me to justify my construing the
expression "subrogated" in a sense which, in my view, involves a fundamental departure from
the principles of "subrogation" as applied in insurance law at the time of the passing of the Act.
Mr. Mocatta, for the insurer, however, relies strongly upon the case of North of England Iron
Steamship Insurance Association v. Armstrong and Others, (1870) L.R. 5 Q.B. 244. This case, he
contends, shows that under the law as it was in 1906, an insurer was entitled to recover from the
assured an amount greater than the sum that he had paid to the assured upon a total loss; and
since the Marine Insurance Act, 1906, was a consolidation Act it should be construed, at least in
case of ambiguity, as declaratory of the existing law. (See Bank of England v. Vagliano
Brothers, [1891] A.C. 107, per Lord Herschell, at p. 145, and British and Foreign Marine
Insurance Company, Ltd. v. Samuel Sanday & Co., [1916] 1 A.C. 650; per Lord Wrenbury, at p.
672.)
It is necessary, therefore, to see what Armstrong's case, sup., did decide. In that case, there was a
valued policy in which the policy value of the hull was <<PoundsSterling>>6000; its actual
value was <<PoundsSterling>> 9000. The assured subsequently recovered
<<PoundsSterling>>5000 in respect of the loss from a third-party tortfeasor partly to blame. The
assured contended that the sum of <<PoundsSterling>>5000 should be apportioned between him
and the insurer in the same proportions as <<PoundsSterling>>3000 to <<
PoundsSterling>>6000; that is to say, he sought to be treated as his own*485 insurer in respect
of the difference between the real value and the policy value. This contention was rejected by the
Court of Queen's Bench upon the ground that the parties were estopped from alleging that the
value was other than that agreed in the policy. No questions arose in that case as to whether the
insurer was entitled to recover from the assured more than the << PoundsSterling>>6000 which
he had himself paid to the assured, but there are certainly passages in the judgment of Chief
Justice Cockburn and Mr. Justice Lush which lead to the conclusion that they would have held
that the insurer was so entitled. The case was decided in 1870. Valued policies were clearly
regarded by the Court as newfangled devices whose use was to be deprecated; no distinction was
drawn by the members of the Court between the insurer's rights in the subject-matter of the
insurance and his rights of subrogation to the remedies of the assured.
It was not, indeed, until Lord Blackburn's judgment seven years later in Simpson & Co. v.
Thomson, Burrell, sup., that this distinction was clearly appreciated by the Courts. The word
"subrogation" is not even used in any of the judgments in Armstrong's case, sup. Armstrong's
case was decided before Castallain v. Preston and Others, sup., the locus classicus of subrogation
in insurance, and, in so far as its reasoning leads to the conclusion that an insurer can recover
from an assured by subrogation a sum greater than he has paid, it is in my view inconsistent with
the reasoning of the Court of Appeal in Castellain v. Preston and Others, sup. For what it actually
decided, namely, that an insurer who pays a total loss under a valued policy can recover from the
assured up to the amount of his payment notwithstanding that the real value is greater, it is an
authority which has frequently been followed, but it has consistently been treated as an authority
for no more than that.
Thus, in Thames and Mersey Marine Insurance Company v. British and Chilian Steamship
Company, [1915] 2 K.B. 214, Mr. Justice Scrutton (ibid., at p. 220) refers critically to that part of
the reasoning of the Court in Armstrong's case upon which Mr. Mocatta relies, and points out
that it was unnecessary to the decision. He treats Armstrong's case as an authority only for the
limited proposition which I have stated. In the same case, on appeal from Mr. Justice Scrutton
(as reported in (1915) 21 Com. Cas. 150), Lord Justice Swinfen Eady, professing to apply
Armstrong's case, says (ibid., at p. 153):
. . . the plaintiffs are entitled to recover from the shipowners all the sums which the shipowners
received in respect of the ship up to the <<PoundsSterling>>45,000, the amount of the insurance.
In Goole and Hull Steam Towing Company, Ltd. v. Ocean Marine Insurance Company, Ltd.,
[1928] 1 K.B. 589, at p. 598; (1927) 29 Ll.L.Rep. 242, at p. 246, Mr. Justice MacKinnon--as he
then was-- suggests that Chief Justice Cockburn's reasoning in Armstrong's case can only be
right if it rests upon the "cession of property to the underwriter upon payment for a total loss."
Finally, in Boag v. Standard Marine Insurance Company, Ltd., [1937] 2 K.B. 113; (1937) 57
Ll.L.Rep. 83, Lord Wright, M.R., citing the above-mentioned judgment of Lord Justice Swinfen
Eady, says (ibid., at pp. 123 and 86 of the respective reports):
. . . Applying that here, the plaintiffs, the underwriters, are entitled to recover all the sums which
the shipowners received in respect of cargo up to the <<PoundsSterling>>685, which is the
amount of the insurance. . . .
Mr. Mocatta has been unable to point to any passage in any judgment other than that in the
Armstrong case itself which supports the proposition that an insurer under the doctrine of
subrogation can recover from the assured any sum in excess of the payment which he has
actually made, and there are many passages in the cases which are inconsistent with it. Since this
case will no doubt go further I need not burden this judgment with more than a few examples. In
Arthur Charles Burnand v. Rodocanachi, Sons & Co., (1882) 7 App. Cas. 333, at p. 339, Lord
Blackburn, in a speech in which he commented critically upon Armstrong's case, said:
The general rule of law (and it is obvious justice) is that where there is a contract of indemnity (it
matters not whether it is a marine policy, or a policy against fire on land, or any other contract of
indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or
diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already
paid it, then, if anything which diminishes the loss comes into the hands of the person to whom
he has paid it, it*486 becomes an equity that the person who has already paid the full indemnity
is entitled to be recouped by having that amount back.
In King v. Victoria Insurance Company, Ltd., [1896] A.C. 250, at p. 256, Lord Hobhouse made
it quite clear that, in their Lordships' view, under the doctrine of subrogation an insurer was
entitled to recover from the assured only "to the extent of the payment" made to the assured by
the insurer under the policy.
Finally, in Attorney-General v. Glen Line, Ltd., and Liverpool & London War Risks
Association, Ltd., (1930) 37 Ll.L.Rep. 55, at p. 61; (1930) 36 Com. Cas. 1, at p. 13, Lord Atkin,
drawing the distinction between the rights of abandonment and the rights of subrogation, said:
. . . it is to be noted that in respect of abandonment the rights exist on a valid abandonment,
whereas in respect of subrogation they only arise on payment; and that subrogation will only
give the insurer rights up to 20s. in the <<PoundsSterling>> on what he has paid. . . .
In the light of these authorities, I am not satisfied that, at the date of the passing of the Marine
Insurance Act, 1906, the law as to subrogation was as Mr. Mocatta-- relying upon the reasoning
of Armstrong's case, sup.-- contends. Indeed, I am satisfied that it was not, but was as I have
stated. I am fortified in this view by the fact that the law apparently is, and has for many years
been, the same in the United States. See The St. Johns, (1900) 101 Fed. 469, at p. 474, where
District Judge Brown says:
If the amount recoverable from the wrongdoer, after payment of the damage claims of third
parties, were in excess of the amount paid by the underwriters to the assured, no doubt that
excess would belong to the latter; since the insurer's right of subrogation in equity could not
extend beyond recoupment or indemnity for the actual payments to the assured. . . .
See also The Livingstone, (1904) 130 Fed. 746.
It follows that, in my view, the insurer's rights in this case were limited to recovering from the
assured the amount overpaid, that is to say, << PoundsSterling>>72,000. He is entitled to no
more. The principle, I think, is a simple one. It renders irrelevant any consideration of the
particular concatenation of circumstances which enable the assured to recover from the Canadian
Government a sum in sterling in excess of the value of the ship at the time of the casualty. The
fact that the policy was a valued policy, with, as it transpired, a policy value somewhat less than
the real value is also irrelevant. The simple principle which I apply is that the insurer cannot
recover under the doctrine of subrogation now embodied in Sect. 79 of the Marine Insurance
Act, 1906, anything more than he has paid.
As I said at the outset, I have, by agreement of the parties, left out of consideration all questions
relating to the costs of the Canadian proceedings. It is conceded for the purposes of my decision
that the defendant company have already accounted to the plaintiff company on the basis that the
plaintiff company was entitled to be repaid <<PoundsSterling>>72,000. It is entitled, in my
view, to no more, and the defendant company is accordingly entitled to judgment, with costs.
(c) Lloyds of London Press Limited
[1961] 1 Lloyd's Rep. 479
END OF DOCUMENT
Copr. (c) West 2001 No Claim to Orig. Govt. Works