There is a growing tendency on the part of insurers to exercise their rights under the doctrine of subrogation, in terms of which they attempt to recover funds paid to an insured from third party wrongdoers.

According to Jacqueline Lafleur, senior associate at pan-African corporate law firm Bowman Gilfillan, they are able to do so under rights available to the insured under the Consumer Protection Act, 68 of 2008.

“In light of this, the question which has arisen is whether an insured, who is deemed a ‘consumer’ under the CPA and is entitled to the protections afforded by the CPA, can subrogate those rights and remedies available to it under the CPA to the insurer,” said Ms Lafleur.

Subrogation, in a literal sense, means the substitution of one party for another as creditor. Subrogation, in the context of insurance law, is a process in terms of which an insurer is entitled to sue, on behalf of an insured, a third party responsible for loss suffered by the insured.

Ms Lafleur explained: “The right to subrogate a claim arises out of a contract of indemnity insurance concluded between the insurer and the insured. It entitles an insurer, who has satisfied the claim of an insured, to be placed in the insured's position in respect of all rights and remedies against other parties which are vested in the insured in relation to the subject matter of the insurance.

“The idea behind the doctrine of subrogation is to ensure that the wrongdoer does not benefit from the fact that the person wronged was insured; that the insured is not enriched at the expense of the insurer by receiving both the insurance indemnity and damages from the wrongdoer; and, that the insurer replaces the insured and is entitled to claim the loss suffered by the insured from the wrongdoer.”

“Consumer” is defined under section 1 of the CPA and includes “a person who has entered into a transaction with a supplier in the ordinary course of the supplier’s business…”.  A “supplier” is defined in the same section to mean “a person who markets any goods or services”.

Under a contract of indemnity insurance concluded between an insurer and an insured, an insured would, unless exempt from the application of the CPA, be considered a consumer and an insurer a supplier under the CPA.

Section 4 of the CPA sets out the realisation of consumer rights and provides, amongst others, that a person acting on his or her own behalf may approach a Court, Tribunal, or the Commission to enforce consumer rights in terms of the CPA.

Arising from this, the Court in the case of Rand Mutual Assurance Company Limited v Road Accident Fund (2008) ZASCA 114 (“the RAF case”) held that, under the doctrine of subrogation, the insurer retains the right to sue a wrongdoer in its own name rather than in the name of the insured as had been the practice in the past.

“To this end, it would appear that an insurer who wishes to exercise its rights of subrogation under a contract of indemnity insurance where the insured is protected by the CPA would be entitled to approach a court in terms of section 4 of the CPA and would have access to all of the rights and remedies available to the insured, and would be able to institute action against a third party for recovery of the damages suffered by the insured in the insurer’s own name,” said Ms Lafleur.