Understanding the principle of subrogation insurance

Under Vietnamese insurance business law, particularly concerning non-life insurance, there exists a principle that permits the insured to transfer their right to claim compensation from a third party who caused damage, to the insurance company or a foreign non-life insurance branch, up to the amount of the insurance compensation. This principle is known as subrogation. 

1. Concept of Subrogation 

The origins of the doctrine of subrogation can be traced back to the Roman doctrine of Cessio Actionum, which was adopted by English courts⁽¹⁾ despite the application of subrogation in English Law is not entirely identical to its Roman law counterpart.⁽²⁾ Over time, this doctrine has spread and is now widely applied in insurance law.⁽³⁾

According to A Dictionary of Law by Oxford University, subrogation is defined as the substitution of one person for another so that the person substituted succeeds to the rights of the other. Thus, an insurer who indemnifies his insured against the loss of goods may be subrogated to the insured person’s rights against a third party whose negligence caused the loss.⁽⁴⁾

In Vietnam, Clause 4, Article 16 of Law on Insurance Business 2022 specifies that the principle of subrogation requires the insured to transfer to the insurer, or a branch of a foreign non-life insurance company (hereafter referred to as the insurance party), the right to seek compensation from the third party responsible for the damage, within the limits of the insurance compensation amount. This principle does not apply to life insurance and health insurance contracts. The subrogation basis in Law on Insurance Business 2022 aligns with the provisions of Civil Code 2015, as Article 365 of the Code permits the party with the right to request performance of the obligation to transfer that right to the subrogator as per agreement. When the right to claim is transferred to the subrogator, the subrogator assumes the right to request performance. In the context of non-life insurance, the subrogator is the insurer, the party with the right to request performance is the insured, and the obligation in this case is the compensation obligation of the third party whose actions cause damage to the insured. 

2. Conditions for Transferring Rights to Claim Reimbursement from the Third Party 

The implementation of the principle of subrogation, which involves transferring the right to request reimbursement from the third party for amounts compensated by the insurer, is applied when the following conditions are met: 

Firstly, the third party must be identified as responsible for compensating due to acts causing damage to the insured. This is a fundamental principle, as compensation is only warranted if the third party is found liable for the damages. 

Secondly, the risks and losses must fall within the scope of the insurance event as defined in the insurance contract. Not all risks and losses necessitate compensation from the insurer. Only those risks and losses covered under the insurance policy, and not excluded by any liability provisions, obligate the insurer to compensate the insured and then implement the principle of subrogation to seek recourse against third parties. 

Thirdly, the insurer must have paid compensation to the insured. Instead of the insured seeking compensation directly from the third party, they receive compensation from the insurer first, who then seeks reimbursement from the third party responsible for the loss. 

Notably, unlike the laws in some other countries, the principle of subrogation under Vietnam’s Law on Insurance Business 2022 applies solely to non-life insurance contracts (property insurance, casualty insurance, and liability insurance)⁽⁵⁾ and does not extend to life and health insurance contracts. In contrast, in the United States, subrogation is commonly applied across various insurance contracts, including property, liability, health, and disability insurance, as well as government-provided insurance like notary, employee, and healthcare insurance.⁽⁶⁾ 

Additionally, if the third party responsible for compensating the insured is the insured’s family member (parent, spouse, or child), the insurer cannot request reimbursement from them unless the loss was caused intentionally.⁽⁷⁾ 

3. Obligations of the Insured When Transferring the Right to Request Reimbursement from The Third Party 

According to Article 54 of Law on Insurance Business 2022, when an insurance event occurs and the third party is liable for compensation, the insured is required to transfer to the insurer the right to seek reimbursement for the amount compensated by the insurer. Should the insured refuse to transfer this right, the insurer may deduct the compensation amount based on the insured’s degree of fault. This regulation establishes that transferring the right to claim reimbursement from the third party is a mandatory obligation for the insured if they have received compensation from the insurer. 

Furthermore, when the insurer exercises the right to claim against the third party, the insured must provide necessary documents and information as specified in the insurance contract to facilitate the reimbursement process. 

The insured also has the obligation to inform the third party of the transfer of claim rights to ensure compliance with the general provisions of Civil Code 2015, which requires written notification of the transfer of rights to the obligor unless otherwise agreed. Failure to notify the obligor of the transfer may result in the party transferring the requesting rights bearing any costs incurred by the obligor. 

In summary, the principle of subrogation plays a crucial role in allowing the insured to receive compensation promptly, enabling them to continue business operations without delay. This principle is widely applied in practice and underscores the importance of using insurance services effectively. 

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⁽¹⁾ John Edwards & Co. v. Motor Union Insurance Co. Ltd., 2 K.B. 249,252 (1922).

⁽²⁾ Supposing A lends money to B, where C stands as surety for B. C is subsequently called upon to repay the loan to A. C accordingly repays. In English law, C was automatically subrogated to the rights which A had against B. This occurred ipso jure, and if necessary even against the wishes of A. But in Roman law, C could not acquire the rights of A against B unless they were ceded to him expressly at or before the repayment. Cessio Actionum was a right which the party paying another’s debt or obligation had, which he may or may not have used, to obtain the benefit of cession. See: M. L. Marasinghe (1975), An Historical Introduction to the Doctrine of Subrogation: The Early History of the Doctrine I, Valparaiso University Law Review, Vol 10, No. 1, pp. 48-49, https://scholar.valpo.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1680&context=vulr. 

⁽³⁾ Imtithal. Babiker Ahmed (2006), Some Aspects of the Doctrine of Subrogation in Insurance law, LLM Thesis, University of Khartoum, page 34, https://core.ac.uk/download/pdf/71675844.pdf.

⁽⁴⁾ Elizabeth A. Martin, A Dictionary of Law (fifth edition), Oxford University Press, p. 483, https://www.ekhtebar.ir/wp-content/uploads/2018/10/Oxford-Dictionary-Of-Law.pdf.

⁽⁵⁾ Clause 1, Article 15 of Law on Insurance Business 2022.

⁽⁶⁾ Nguyen Minh Phu (2022), Recommendations to improve regulations on transfer of claim rights in property insurance contracts, Journal of Law and Practice, no. 58/2024, p. 122, https://tapchi.hul.edu.vn/index.php/jl/article/view/372/216. 

⁽⁷⁾ Clause 3, Article 54 of Law on Insurance Business 2022.

 

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

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