Subrogation under Japanese Law

Satoshi Nakaide

Professor, Waseda University LLM(London), Diploma(Cambridge) [email protected]

Marine Insurance WP 18 September, 2013 Sydney

1 . Governing Law of the Marine Insurance Policy

Inland Hull, Inland Cargo

… Japanese law and jurisdiction

Ocean Hull on Japanese Vessel

… normally Japanese law

Overseas Cargo

… ICC + law and jurisdiction clause “Notwithstanding anything contained herein or attached hereto to the contrary, this insurance is understood and agreed to be subject to English law and practice only as to liability for and settlement of any and all claims .”

Ocean Hull

… ITC + law and jurisdiction clauses Law and Jurisdiction Clauses “Art.1 English law and practice shall apply as to liability for and settlement of any and all insurance claims. In all other respects, including issues as to the existence and validity of this insurance, this insurance is subject to Japanese law and practice.

Art.2 This insurance shall be subject to the exclusive jurisdiction of the Tokyo District Court of Japan, except as may be expressly provided herein to the contrary. ” 2

2. Sources of Insurance Law in Japan

Insurance Business

… Insurance Business Law amended largely in 1995

Insurance Contract

… Insurance Law (2008) covers contracts with insurance company contracts with mutual aid society,

Kyosai

Marine Insurance

… Commercial Code 1899 Book Ⅲ (Maritime Commercial Law) Chapter 6 (Insurance), Articles 815-841 3

Structure of Laws covering Marine Insurance

Private agreement Marine Insurance Policy Conditions Commercial Code 1899 (Book Ⅲ Chapter 6, Articles 815-841) Supervision FSA Insurance Law 2008 Insurance Business Law 1995 Civil Code 1896 Book Ⅲ Chapter 2 Civil Contracts in general 4

Insurance Law 2008

＊

Scope

… various insurance contracts including mutual aid and P&I insurance ＊

Classification

- non-life insurance contract （ indemnity insurance contract) - accident and illness insurance contract of indemnity basis - life insurance contract - fixed return accident and illness insurance contract ＊

Nature of the Provision

- mandatory 3 types - semi-mandatory not applicable to marine insurance - discretionary 5

3. Subrogation over the Remaining Property

Insurance Law

Article 24: Subrogation over Remaining Property

In the event that the subject matter of insurance is destroyed in its entirety and an insurer has paid insurance benefits, it shall, as a matter of course, acquire on behalf of an assured the title or other real rights retained by such assured in respect of such subject matter of insurance in accordance with the proportion of the amount of such insurance benefits to the insurable value (agreed insurable value, of any).

cf:

Commercial Code Article 833-841

Abandonment in marine insurance 6

Subrogation over the Remaining Property

① insurance payment for total loss Insurer Assured ② property cf:

Abandonment

① property Insurer ② insurance payment for total loss Assured

Subrogation over the Remaining Property

- prevention of unjust enrichment - quick payment of insurance money

- Applicable only to total loss including total loss in part - Transfer occurs as a matter of course.

No need for the insurer to show his intention - Transfer occurs at the time of insurance payment. - Semi-mandatory provision which does not permit alteration against the benefit of the assured Insurer may waive his right.

For marine insurance, Art. 24 is discretional.

- In case of under insurance ⇒ proportionate transfer 8

Practices : Subrogation over the Remaining Property

Both hull and cargo insurance clauses modify the insurance law.

- The property will not transfer to the insurer unless the insurer expresses his intention to acquire the property.

- Where the assured claims for a total loss, he must notify the insurer of any liability, lien, debt or other duty and must clear or remove these at the cost of the assured.

Cf Abandonment

- The right of abandonment is denied under Japanese marine policy. Insurers treat constructive total loss (under English law) as a total loss without requiring abandonment.

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Legal Issues : Subrogation over the Remaining Property

- It is not clear whether the insurer may waive his right of subrogation over the remaining property where the assured might gain more than his loss by the insurer’s waiver, such as where the lost cargo is discovered later and returned to the assured.

* Does it create a situation of unjust enrichment?

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4. Subrogation against Third Party

Insurance Law Article 25: Right of Subrogation against Third Party (1) In the event that an insurer has paid insurance benefits, it shall, as a matter of course, acquire on behalf of the assured the claims to be obtained by the assured as a result of damage due to insurable contingencies (as regards a non-life insurance contract under which damage that may arise on certain claims from default or otherwise is to be covered, such claims shall be included; hereinafter referred to as the ‘assured’s claims’), to the extent of lesser of: (a) the amount of insurance benefits paid by such insurer; or (b) the amount the assured’s claims (if the amount mentioned in the preceding item is less than the amount of damage to be covered, the amount remaining after deducting from the amount of the assured’s claims such deficiency).

(2) If, in the case of the preceding paragraph, the amount mentioned in item 1 of the said paragraph is less than the amount of damage to be covered, an assured shall be entitled to receive repayment of the assured’s claims except for the portion acquired by an insurer on behalf of the assured in accordance with the provisions of the said paragraph, in priority to the claims of the insurer thus acquired.

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Subrogation against Third Party

① right for compensation

500

Assured 50% liable

loss 1000

⑤ compensation

200

② Insurance ③ Insurance ④ subrogation claim

800

payment

800

claim

300

Third Party 50% liable ⑥ payment

300

＊

under insurance

of 80 %

Subrogation against Third Party

- prevention of unjust enrichment - not reducing the liability of the wrongful third party - quick payment of insurance money

- semi-mandatory provision - The assured’s right outweighs the insurer’s right.

- Transfer occurs as a matter of course. No need for the insurer to show his intention - Insurer acquires the right up to the amount of his payment.

- Insurer is able to sue the third party in his own name.

- Assured loses his right for claim against third party to the extent of the compensation made by the insurer. This is so even where the insurer does not exercise his subrogation right against third party (Supreme Court Decision). 13

Practices in Marine Insurance : Subrogation against Third Party

Both hull and cargo insurance clauses impose certain duty on the assured but do not modify the insurance law on subrogation substantially.

The insurer imposes a duty on the assured to secure his right against the third party and provide necessary assistance to the insurer in respect of the insurer’s claim against third party. Expenses incurred in fulfilling this obligation are payable by the insurer.

* No stipulation of the effect of violation of this duty

On paying insurance claim, the insurer asks the assured to submit the

subrogation form

in which the assured confirms the transfer of his right to the insurer as well as his duty to provide information and assistance to the insurer in pursuing recovery action.

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Legal Issues : Subrogation against Third Party

< Controversial Point 1 >

- Under the Law and Jurisdiction Clause, governing law on subrogation is not clear. Is subrogation regarded as a matter of “liability and settlement of claim” ?

In English law, the title to sue remains on the assured, whereas under Japanese law the title transfers from the assured to the insurer upon payment.

Sometimes the responsible third party denies liability against the insurer’s claim, arguing that the insurer has no title to sue under English law.

Insurer sometimes asks the assured to assign his right against the responsible party to the insurer to protect him against this uncertainty.

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Legal Issues : Subrogation against Third Party

< Controversial Point 2 >

- Apportionment of recovery Under Japanese Insurance Law, the right of assured outweighs the right of insurer. It is not certain how the apportionment of recovery money will be in the case like English

Lord Napier

case (House of Lords adopted the top down method in the liability insurance of layers). It is arguable whether English law applies to the ocean marine policy as it is an issue of liability under the law and jurisdiction clause. In the case of limitation of liability , can assured recover for his uninsured loss preferentially? Ship owner Uninsured loss Insurer’s payment ?

Compensation fund is limited by law or in fact.

Does “

Kongruenzprinzip

” harmonize with the assureds’ priority principle?

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Legal Issues : Subrogation against Third Party

< Controversial Point 3 >

- Under Japanese law on tort, the victim may claim interest on his damages from the time of the tort. It is not clear whether the responsible party must pay the interest of damages in respect of the period from the time of the accident to the time of insurance payment to the insurer who becomes to be the claimer from the time of insurance payment by subrogation.

Does the insurer subrogate to the right of the assured at the time of the accident or at the time of his insurance payment?

claims in tort (damages) Interest allowable in law for commercial claim is 6% time of casualty in tort time of ins. payment settlement by third party 17

Legal Issues : Subrogation against Third Party

-

< Controversial Point 4 >

The insurer may agree to the from the third party? waiver of subrogation with the assured in return for receiving an additional premium. In such a situation, can the assured receive both insurance payment and compensations for his loss from the liable third party so long as the aggregate amount of various losses is larger than the amount of insurance payment and compensation The assured may argue that the double compensations in such a situation does not create a situation of unjust enrichment and that the insurer should not be benefited because he has received an extra premium for it.

Insurance payment Losses suffered by assured Compensation from third party

END

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