required to bring suit in his own name presumably because the assured might
become disinterested once he was indemnified by the insurer. Under the law and
practice of Kentucky, the relevant jurisdiction in the Urban Industries case, and in
the federal courts, such suit is required to be brought by the “real party in interest” in
his own name. Interestingly, in that case, there were multiple insurers who fit that
description and thus were entitled to the windfall arising from the grant of punitive
damages.
58
The decision in Urban Industries awarding compensatory and punitive damages
to the insurers being consistent with the basic tenets of subrogation, had a certain
ring of appeal to it as both the assured and the insurers were indemnified, and the
legal liability fell on the tortfeasor. Notable in this context is that subrogation as a
concept is a product of equity, the object of which is to secure fairness and justice in
substance regardless of the form in which it appears. Thus, it is always subject to
equitable principles so that no injustice is inflicted on others. Subrogation as an
equitable principle is not inconsistent with punitive damages, the purpose of which is
to impose liability on the tortfeasor for his actions that are repugnant to the law; it
serves as a civil sanction and a deterrent. Thus, the award of punitive damages was
well justified, and not doing so would have led to unjust enrichment of the tortfeasor.
Equity calls for flexibility in approach where it leads to a goal that is desirable.
59 In
Yorkshire Insurance, even though no punitive damages were awarded, Diplock
J. seemingly contemplated that the insurer would claim such damages. In this regard,
it must be noted that the major difference in the factual circumstances between the
Urban Industries and Yorkshire Insurance cases is that in the former, the act of the
tortfeasor in burning down the plaintiff’s property was akin to a criminal offence,
whereas in the latter, the excess amounts in question resulted from changes in the
exchange rate of the British pound vis a vis the Canadian dollar.
Be that as it may, flexibility also has its downsides. If there is unbridled flexibility
regarding who can get the benefit of a windfall in a subrogation case, or whether the
court should award punitive damages, it will give rise to uncertainty in the law which
is undesirable at all times. Needless to say, however, certainty in the law is not
always there. How serious a problem legal uncertainty might pose is indeed a
thought-provoking question. In the view of one commentator, the cost of uncertainty
in the law in the field with which the present discussion is concerned, is relatively
low in comparison with other alternative risks.
60 In his observation and opinion, if
the Yorkshire Insurance case were to be strictly followed, then the assured would
always recover the windfall, that is, the excess amount consequential to the suit,
regardless of who initiated it, and would enjoy its benefits without incurring any
58 See Bybee (1979), p. 155, in particular, footnote 49 at that page where several federal court cases
are mentioned.
59 See the American case Flannary v. Utley, (1887), 3 S.W. 412 at p. 413 and Bybee (1979)
at p. 157.
60 Bybee (1979), p. 158.
576
P. K. Mukherjee
become disinterested once he was indemnified by the insurer. Under the law and
practice of Kentucky, the relevant jurisdiction in the Urban Industries case, and in
the federal courts, such suit is required to be brought by the “real party in interest” in
his own name. Interestingly, in that case, there were multiple insurers who fit that
description and thus were entitled to the windfall arising from the grant of punitive
damages.
58
The decision in Urban Industries awarding compensatory and punitive damages
to the insurers being consistent with the basic tenets of subrogation, had a certain
ring of appeal to it as both the assured and the insurers were indemnified, and the
legal liability fell on the tortfeasor. Notable in this context is that subrogation as a
concept is a product of equity, the object of which is to secure fairness and justice in
substance regardless of the form in which it appears. Thus, it is always subject to
equitable principles so that no injustice is inflicted on others. Subrogation as an
equitable principle is not inconsistent with punitive damages, the purpose of which is
to impose liability on the tortfeasor for his actions that are repugnant to the law; it
serves as a civil sanction and a deterrent. Thus, the award of punitive damages was
well justified, and not doing so would have led to unjust enrichment of the tortfeasor.
Equity calls for flexibility in approach where it leads to a goal that is desirable.
59 In
Yorkshire Insurance, even though no punitive damages were awarded, Diplock
J. seemingly contemplated that the insurer would claim such damages. In this regard,
it must be noted that the major difference in the factual circumstances between the
Urban Industries and Yorkshire Insurance cases is that in the former, the act of the
tortfeasor in burning down the plaintiff’s property was akin to a criminal offence,
whereas in the latter, the excess amounts in question resulted from changes in the
exchange rate of the British pound vis a vis the Canadian dollar.
Be that as it may, flexibility also has its downsides. If there is unbridled flexibility
regarding who can get the benefit of a windfall in a subrogation case, or whether the
court should award punitive damages, it will give rise to uncertainty in the law which
is undesirable at all times. Needless to say, however, certainty in the law is not
always there. How serious a problem legal uncertainty might pose is indeed a
thought-provoking question. In the view of one commentator, the cost of uncertainty
in the law in the field with which the present discussion is concerned, is relatively
low in comparison with other alternative risks.
60 In his observation and opinion, if
the Yorkshire Insurance case were to be strictly followed, then the assured would
always recover the windfall, that is, the excess amount consequential to the suit,
regardless of who initiated it, and would enjoy its benefits without incurring any
58 See Bybee (1979), p. 155, in particular, footnote 49 at that page where several federal court cases
are mentioned.
59 See the American case Flannary v. Utley, (1887), 3 S.W. 412 at p. 413 and Bybee (1979)
at p. 157.
60 Bybee (1979), p. 158.
576
P. K. Mukherjee