Where assureds have no financial interest in the outcome of the legal proceedings taken in their name they are generally content to let the matter proceeds without their active involvement. However, it may take time to settle the insurance claim and the assured may wish to protect their position in case the insurance claim fails, or there may be a need for the position against third parties to be protected, most obviously where a time limit is due to expire. If the claim has yet to be paid under the insurance contract, the insurers have no subrogation rights under the Marine Insurance Act 1906 (section 79) for, as we have seen above, those rights only accrue on “payment” of the claim. However, if the assured commences legal proceedings whilst the claim under the policy is pending, to recover his uninsured loss, or simply to protect the position generally, he must conduct the legal action consistent with this duty to preserve the rights of the insurers. In particular, the assured must not make a settlement that simply recovers his uninsured loss to the prejudice of the insurers’ loss in cargo insurance the matter is taken one step further by Clause 16 of the Institute Cargo Clauses, the Duty of Assured Clause, under which the assured has a positive duty to take recovery proceedings even where insurers have declined the claim under the insurance. For example, in a cargo of timber, insured under the Institute Cargo Clauses (All Risks) for carriage from Asia to Europe was delivered in a damaged state. The insurers denied liability for this claim and, without prejudice to that denial of liability, asserted that the assured were under an obligation under the Bailee Clause, the predecessor to the Duty of Assured Clause, to protect the time limit and preserve their rights against the carriers. The Court held that the insurers were justified in so doing and that it was an implied term of the contract (now made express in Clause 16 of the revised Institute Cargo Clauses) that the costs of such proceedings were recoverable under the insurance contract. In this context it may be noted that the assured who takes unsuccessful proceedings against a third party will be entitled to recover the costs of such proceedings as long as they are proper and reasonable under Clause 16 of the Institute Cargo Clauses. Such costs have, under general principles of subrogation, been held to include costs of pre-trial investigations and other related costs reasonably directed at attempting to reduce the loss.
The insurers were “willing to pay” the Sum Insured but were anxious that if they did so the assured would accept the balance from the local authority in compromise of the whole claim. The insurers therefore applied to the court for an injunction and declaration that:
1. they were entitled to the benefit of the assured’s right of action;
2. that the assured be restrained from prosecuting the action for anything less than the whole amount of the claim; and
3. that the assured be restrained from refusing to allow the insurers to use his name.
The Court of Appeal held that the assured was entitled to be in control of the proceedings (dominus litis). The assured was required to give an undertaking that he would proceed for the full amount of the claim but no further obligations were imposed upon him. The application of this case to circumstances where insurers have paid seems doubtful bearing in mind that the insurers were no more than “willing to pay” and if they had paid they would have been entitled to subrogation rights.The question of whether, after payment, the insurers or assured have control of the proceedings seems to be open. As there is no authority directly in point, the issue can only be approached as one of principle. The right of action itself remains the right of the assured in all cases. Where there is under-insurance, or layered insurance, including cases where there is an excess or a limit, the assured should, in principle, be entitled to control the proceedings. Even if the assured has been compensated in full in respect of his claim he is still at risk as to costs and the promise of an indemnity, in the subrogation form, does not protect the assured from incurring the primary liability for those costs. It may be said that the assured always has an interest in the proceedings which are, it they come to trial, a matter of public record. Whether the assured be an individual or a company, the public nature of the proceedings may be important to the reputation of the assured. It is submitted, therefore, that in principle the assured is entitled in all cases to be (dominus litis), as it is their legal action. If the assured will not co-operate, and is in breach of his subrogation obligations, the remedy for the insurers is to join the assured in the proceedings against the third party order to enforce their rights of subrogation.
