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Royal & Sun Alliance Insurance PLC & Ors v Textainer Group Holdings Limited & Ors

[2024] EWCA Civ 547
Imagine an insurance policy with multiple layers, like a cake. If you have a big loss and the insurance pays out some layers, but you later get some money back, that money goes to the parts of the loss NOT covered by insurance first. Only after you’ve recovered those uncovered losses do you share the remaining recovery with the insurers who already paid you.

Key Facts

  • Textainer, a large intermodal container lessor, suffered significant losses due to the bankruptcy of Hanjin Shipping.
  • Textainer had a multi-layered excess of loss insurance program.
  • Insurers paid out US$75.1m under the policies, leaving uninsured losses.
  • Textainer subsequently recovered US$14,706,880.84 from Hanjin.
  • Insurers claimed a proportionate share of the recovery, while Textainer argued for a 'top-down' approach.

Legal Principles

Subrogation allows an insurer who has indemnified an insured to benefit from any means available to the insured to reduce the loss.

MacGillivray on Insurance Law 15th ed. 2022 para 22-001

In excess of loss insurance, recoveries should be applied 'top-down', meaning they are first applied to the uninsured losses before being applied to the insured layers.

Lord Napier and Ettrick v Hunter [1993] AC 713; Kuwait Airways Corporation v Kuwait Insurance Co S.A.K [2000] 1 Lloyd’s Rep 252

Section 81 of the Marine Insurance Act 1906 applies to underinsurance, where the insured value is less than the actual value. It does not apply to excess of loss policies where the cover is for a defined portion of the loss.

Marine Insurance Act 1906, section 81; The Commonwealth [1907] P 216; Napier

Outcomes

The appeal was dismissed.

The court held that the top-down approach to applying recoveries should be applied. The insurers' arguments regarding proportionate application based on the timing of losses and application of section 81 of the Marine Insurance Act 1906 were rejected.

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