Did you know? A key provision of the Insurance Contract Act 1984 is section 65 on subrogation. Specifically, subrogation of rights against family members or others closely related to the insured.
What is Subrogation? Subrogation allows an insurer, after paying a claim, to step into the shoes of the insured and pursue recovery from a third party said to have caused the insured’s loss. Section 65 places limitations on the right of subrogation where there is a personal relationship between the insured and the third party.
Key Provisions of Section 65
- Application of section 65
Section 65(1) states:
“Subject to subsection (2), section 65 applies where:
- an insurer is liable under a contract of general insurance in respect of a loss;
- but for this section, the insurer would be entitled to be subrogated to the rights of the insured against some other person (in this section called the third party); and
- the insured has not exercised those rights and might reasonably be expected not to exercise those rights by reason of:
- a family or other personal relationship between the insured and the third party; or
- the insured having expressly or impliedly consented to the use, by the third party, of a road motor vehicle that is the subject – matter of the contract.”
- When section 65 Applies: Restrictions on Suing a Family Member
Section 65(1) imposes restrictions on an insurer’s ability to pursue recovery of an insured’s loss from a third party who has a close personal relationship with the insured, such as a family member. These restrictions apply in the following three key situations:
- If the insured has a close personal relationship with the third party, such as a family member, and has chosen not to pursue legal action against them, it is reasonable to expect that the insured would not sue the third party due to that relationship. In this case, the insurer is restricted from pursuing its right of subrogation. For instance, if a family member accidentally damages the insured’s property, and the insured opts not to sue because of their relationship.
- If the insured has either expressly or impliedly consented to the third party’s use of a motor vehicle that is the subject of the insurance contract, and that vehicle is involved in a loss, the insurer cannot pursue the third party. For example, if the insured lends their car to a family member who then causes accidental damage, the insurer cannot seek recovery from that family member.
- If the third party is not insured for their liability to the insured, the insurer has no right to pursue the third party. This situation typically arises when a family member causes accidental damage and does not have applicable insurance coverage.
- Exceptions to section 65: When You Can Sue a Family Member
Despite these restrictions, there are exceptions under section 65(2) where an insurer may pursue recovery against a third party who has a close personal relationship with the insured:
- When the third party’s conduct involves serious or wilful misconduct. For example, if a third party deliberately damages the insured’s property or engages in reckless behaviour that leads to a loss, the insurer’s right to pursue the third party is preserved.
- When the third party’s actions arise from their employment by the insured. If a third party, while acting in their capacity as an employee, causes a loss, the insurer retains the right to pursue the third party.
- Finally, if the third party held a separate insurance policy, the insurer can pursue the third party, but only up to the amount that the third party’s insurance covers. For example, if a third party causes damage and has applicable insurance coverage, the insurer can recover from the third party an amount equal to the amount the third party is insured for, but nothing more than that.
Practical Considerations for Insurers
Section 65 is designed to balance the rights of insurers with the personal relationships of its insureds.
When handling claims involving potential subrogation against a family member or close associate of the insured, insurers should carefully assess the personal relationship between the insured and the third party to determine whether subrogation is appropriate under Section 65. It is also important to evaluate whether the third party’s actions fall within the exceptions, such as serious misconduct or employment-related actions. Additionally, insurers should verify the third party’s insurance status to decide if recovery is possible.
More about me (Muska Namdar) – I’m excited to share that I have nominated as a finalist in two categories at the Australian Women In Law Awards 2024! I’m in the running for Senior Associate of the Year and Rising Star of the Year! Can’t wait to celebrate with all the incredible women in law!
