the lender bore the loss, and in that sense, stood in the position of an insurer. The
practice is still in vogue in certain parts of the world.
Marine insurance law is based on a contractual relationship between the insurer,
the provider of insurance and the assured, the owner of the property which is the
subject of the insurance contract. There are a number of doctrines that govern marine
insurance law; the first and foremost among them concerns the adage that an
insurance agreement is a contract of indemnity which means that while the insurer
indemnifies the assured for a loss caused by an insured peril, the assured can never
recover from the insurer more than the value of his loss. In other words, “the assured
must not make a profit at the expense of the insurer”.
3 In the classic English case
Castellain v. Preston,
4 the court upheld this as a fundamental principle and stated
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. . .”
5
The doctrines of indemnity and subrogation are germane to the present discourse
and are closely intertwined. In juxtaposition to indemnity, subrogation allows the
insurer to “step into the shoes” of the assured after indemnifying his loss, and inherit
the latter’s rights, remedies, benefits and advantages.
6 He can bring action against
the third-party responsible for the loss, and thereby recoup what he has paid to the
assured.
7 This prevents “double-dipping” by the assured, that is, getting paid twice,
once by the insurer and then by the third-party, which is in line with the principle of
indemnity. It may happen on occasion, although not frequently, that there is more
money “in the pot” as it were, than the amount of the pecuniary loss suffered by the
assured. This could happen in particular circumstances, as will be illustrated through
the relevant case law. Such instances give rise to the phenomenon of “windfall”
which is the central theme of this chapter; it raises the question—who gets to keep
the surplus? The discussion will elaborate on the principle of subrogation by
reference to scholarly works and the Marine Insurance Act 1906 of the United
Kingdom, and other related factors including restitution, unjust enrichment and
their correlation with windfall. The issues associated with windfall will be analytically examined through a perusal of English and American cases identifying problems of contradiction and inconsistency with principles of equity and potential
conflict between certain decided cases and some fundamental principles of marine
insurance. The critique of the case law will include propositions for judicial consideration of alternatives in conclusion.
3 Gaskell et al. (1987), pp. 519–520.
4 (1883), 11 QBD 380.
5 Ibid. at p. 386.
6 Khurram (1994), pp. 114–115.
7 Gold et al. (2003), p. 327. See also https://www.oxbridgenotes.co.uk/revisionnotes/law-aspectsof-obligations/samples/6-dot-subrogation.
564
P. K. Mukherjee
practice is still in vogue in certain parts of the world.
Marine insurance law is based on a contractual relationship between the insurer,
the provider of insurance and the assured, the owner of the property which is the
subject of the insurance contract. There are a number of doctrines that govern marine
insurance law; the first and foremost among them concerns the adage that an
insurance agreement is a contract of indemnity which means that while the insurer
indemnifies the assured for a loss caused by an insured peril, the assured can never
recover from the insurer more than the value of his loss. In other words, “the assured
must not make a profit at the expense of the insurer”.
3 In the classic English case
Castellain v. Preston,
4 the court upheld this as a fundamental principle and stated
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. . .”
5
The doctrines of indemnity and subrogation are germane to the present discourse
and are closely intertwined. In juxtaposition to indemnity, subrogation allows the
insurer to “step into the shoes” of the assured after indemnifying his loss, and inherit
the latter’s rights, remedies, benefits and advantages.
6 He can bring action against
the third-party responsible for the loss, and thereby recoup what he has paid to the
assured.
7 This prevents “double-dipping” by the assured, that is, getting paid twice,
once by the insurer and then by the third-party, which is in line with the principle of
indemnity. It may happen on occasion, although not frequently, that there is more
money “in the pot” as it were, than the amount of the pecuniary loss suffered by the
assured. This could happen in particular circumstances, as will be illustrated through
the relevant case law. Such instances give rise to the phenomenon of “windfall”
which is the central theme of this chapter; it raises the question—who gets to keep
the surplus? The discussion will elaborate on the principle of subrogation by
reference to scholarly works and the Marine Insurance Act 1906 of the United
Kingdom, and other related factors including restitution, unjust enrichment and
their correlation with windfall. The issues associated with windfall will be analytically examined through a perusal of English and American cases identifying problems of contradiction and inconsistency with principles of equity and potential
conflict between certain decided cases and some fundamental principles of marine
insurance. The critique of the case law will include propositions for judicial consideration of alternatives in conclusion.
3 Gaskell et al. (1987), pp. 519–520.
4 (1883), 11 QBD 380.
5 Ibid. at p. 386.
6 Khurram (1994), pp. 114–115.
7 Gold et al. (2003), p. 327. See also https://www.oxbridgenotes.co.uk/revisionnotes/law-aspectsof-obligations/samples/6-dot-subrogation.
564
P. K. Mukherjee