from the insurer and the other from damages paid by the perpetrator of the loss. He
will thus be over-indemnified for a single loss which can be countered or made right
by the insurer exercising a right to recoup the money he paid to the assured from the
perpetrator of the loss, which in essence is subrogation.
2.1.2 Subrogation, Indemnity and Gift
A leading case in this field is Burnand v. Rodocanachi
17 in which underwriters had
insured cargoes under valued policies. Upon destruction of the cargo caused by the
U.S. Navy cruiser Alabama, the insurers paid the amount of the insured value to the
assured cargo owners, which were lower than the actual value of the cargo. Later, the
US Congress passed legislation setting up a fund for compensating victims who the
insurers had not reimbursed, or if they did, it was insufficient. The Act in question
did not provide for any monies to be paid to the insurers for payments they had made,
but the insurers claimed subrogation, nevertheless. In the appeal to the House of
Lords, the apex court decided that the payment from the fund was not meant to
reduce the indemnity paid by the insurers but was rather a gift to victims; it did not
give rise to any rights in favour of the insurers.
The insurers based their arguments on two grounds. One, that having paid for a
total loss under the insurance contract, they had become entitled to any amount given
to the defendants by the United States Government through the fund; and two, in
terms of established principles of marine insurance law, the assured having received
payment for a total loss is required to surrender to the insurers, the remains of the
ship, which has become vested in the insurer, as well as all incidental benefits
associated with it. The payment from the fund was given entirely for the lost cargo
and was in the nature of salvage as if the cargo was not really destroyed but was
recaptured by the Government and returned to the cargo owners. In rejecting the
contentions of the insurers, the House of Lords held that payments from the fund
were a gift from an extraneous source and did not give rise to any such rights as were
pleaded by the insurers. The court also stressed that the payment was a gift because
there was no obligation on the part of the U.S. Government to make any payments to
the assured, but it was simply a charitable or gratuitous act. Neither was the money
paid as restitution or as a subscription to indemnify those who had suffered war
losses and had not been indemnified through any insurance. Furthermore, the
legislation expressly precluded plaintiff insurers from making any claims whether
in their own names or in the names of the assured.
17 (1882), 7 App. Cas. 333 4 Asp. M.L.C. 576. Another older case involving the effect of gifts on
subrogation is the South African Stearns v Village Main Reef Gold Mining Co. (1905), 10 Com Cas
89. Cited in Odeke (2017), p. 23.
Windfall in the Law of Subrogation: Marine Insurance in Motion
567
will thus be over-indemnified for a single loss which can be countered or made right
by the insurer exercising a right to recoup the money he paid to the assured from the
perpetrator of the loss, which in essence is subrogation.
2.1.2 Subrogation, Indemnity and Gift
A leading case in this field is Burnand v. Rodocanachi
17 in which underwriters had
insured cargoes under valued policies. Upon destruction of the cargo caused by the
U.S. Navy cruiser Alabama, the insurers paid the amount of the insured value to the
assured cargo owners, which were lower than the actual value of the cargo. Later, the
US Congress passed legislation setting up a fund for compensating victims who the
insurers had not reimbursed, or if they did, it was insufficient. The Act in question
did not provide for any monies to be paid to the insurers for payments they had made,
but the insurers claimed subrogation, nevertheless. In the appeal to the House of
Lords, the apex court decided that the payment from the fund was not meant to
reduce the indemnity paid by the insurers but was rather a gift to victims; it did not
give rise to any rights in favour of the insurers.
The insurers based their arguments on two grounds. One, that having paid for a
total loss under the insurance contract, they had become entitled to any amount given
to the defendants by the United States Government through the fund; and two, in
terms of established principles of marine insurance law, the assured having received
payment for a total loss is required to surrender to the insurers, the remains of the
ship, which has become vested in the insurer, as well as all incidental benefits
associated with it. The payment from the fund was given entirely for the lost cargo
and was in the nature of salvage as if the cargo was not really destroyed but was
recaptured by the Government and returned to the cargo owners. In rejecting the
contentions of the insurers, the House of Lords held that payments from the fund
were a gift from an extraneous source and did not give rise to any such rights as were
pleaded by the insurers. The court also stressed that the payment was a gift because
there was no obligation on the part of the U.S. Government to make any payments to
the assured, but it was simply a charitable or gratuitous act. Neither was the money
paid as restitution or as a subscription to indemnify those who had suffered war
losses and had not been indemnified through any insurance. Furthermore, the
legislation expressly precluded plaintiff insurers from making any claims whether
in their own names or in the names of the assured.
17 (1882), 7 App. Cas. 333 4 Asp. M.L.C. 576. Another older case involving the effect of gifts on
subrogation is the South African Stearns v Village Main Reef Gold Mining Co. (1905), 10 Com Cas
89. Cited in Odeke (2017), p. 23.
Windfall in the Law of Subrogation: Marine Insurance in Motion
567