question arises as to who is entitled to it. This was precisely the situation in the
American case The Livingstone.
33
In that case, the ship Livingstone owned by the assured was involved in a collision
which resulted in its sinking. The insurer paid to the assured, the amount of $25,000
in accordance with a valued policy. Subsequently, the assured recovered from the
tortfeasor the amount of $37,500 which was the actual value of the ship. After
$25,000 was paid to the insurer from the amount received from the tortfeasor, the
balance of $12,500 (representing a windfall) was claimed by both the insurer as well
as the assured. The insurer contended that it was entitled to the balance as it was a
part of all the rights of the assured to which it was subrogated. The assured took the
position that it was entitled to be compensated for the uninsured loss.
34 The Second
Circuit court held in favour of the assured owners clarifying that subrogationdoes not permit one party to secure an unfair advantage over the other; it does not permit the
insurer to speculate, or profit or drive an unconscionable bargain. When he is paid in full
equity requires the return of the balance to the insured in payment of his uncompensated
loss.
35
The court went on to say, in essence, that equity did not permit the insurer to get
his hands on “an enormous profit from the transaction.”
36 The factual situation in
this case clearly illustrated that if the remedy given by the court were otherwise, the
insurer would have profited directly at the expense of the assured which would have
been contrary to the principle of indemnity entrenched in insurance law.
37
Another earlier case on point is The St. Johns
38 where the court as per the dictum
of District Judge Brown held as follows:
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.
39
Notably, this American case was cited with approval by the English court in
Yorkshire Insurance v. Nisbett per Diplock J. elaborately discussed earlier.
40
There are a number of non-shipping cases in United States jurisdictions that are
relevant to the present discussion on windfalls in relation to rights of subrogation.
One among them is Carolina Casualty Insurance Co. v. Local 612, International
Brotherhood of Teamsters.
41 This case involved a dispute between a company and a
33 130 F. 746 (2
nd Cir.), 194 U.S. 637 (1904).
34 See Bybee (1979), p. 148.
35 Supra, note 33 at p. 749.
36 Ibid at p. 751.
37 Bybee (1979), p. 148.
38 101 F. 469.
39 Ibid. at pp. 474–475.
40 See supra, note 22 at p. 486.
41 136 F Supp. 941 (N.D. Ala. 1956).
572
P. K. Mukherjee
American case The Livingstone.
33
In that case, the ship Livingstone owned by the assured was involved in a collision
which resulted in its sinking. The insurer paid to the assured, the amount of $25,000
in accordance with a valued policy. Subsequently, the assured recovered from the
tortfeasor the amount of $37,500 which was the actual value of the ship. After
$25,000 was paid to the insurer from the amount received from the tortfeasor, the
balance of $12,500 (representing a windfall) was claimed by both the insurer as well
as the assured. The insurer contended that it was entitled to the balance as it was a
part of all the rights of the assured to which it was subrogated. The assured took the
position that it was entitled to be compensated for the uninsured loss.
34 The Second
Circuit court held in favour of the assured owners clarifying that subrogationdoes not permit one party to secure an unfair advantage over the other; it does not permit the
insurer to speculate, or profit or drive an unconscionable bargain. When he is paid in full
equity requires the return of the balance to the insured in payment of his uncompensated
loss.
35
The court went on to say, in essence, that equity did not permit the insurer to get
his hands on “an enormous profit from the transaction.”
36 The factual situation in
this case clearly illustrated that if the remedy given by the court were otherwise, the
insurer would have profited directly at the expense of the assured which would have
been contrary to the principle of indemnity entrenched in insurance law.
37
Another earlier case on point is The St. Johns
38 where the court as per the dictum
of District Judge Brown held as follows:
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.
39
Notably, this American case was cited with approval by the English court in
Yorkshire Insurance v. Nisbett per Diplock J. elaborately discussed earlier.
40
There are a number of non-shipping cases in United States jurisdictions that are
relevant to the present discussion on windfalls in relation to rights of subrogation.
One among them is Carolina Casualty Insurance Co. v. Local 612, International
Brotherhood of Teamsters.
41 This case involved a dispute between a company and a
33 130 F. 746 (2
nd Cir.), 194 U.S. 637 (1904).
34 See Bybee (1979), p. 148.
35 Supra, note 33 at p. 749.
36 Ibid at p. 751.
37 Bybee (1979), p. 148.
38 101 F. 469.
39 Ibid. at pp. 474–475.
40 See supra, note 22 at p. 486.
41 136 F Supp. 941 (N.D. Ala. 1956).
572
P. K. Mukherjee