| Rand Mutual Assurance Co Ltd v Road Accident Fund, a Supreme Court of Appeal judgment delivered on 25 September 2008 considers the rights of insurance companies to sue third-party wrongdoers in their own names. The judgement has set precedent for the legal scope of the doctrine of subrogation.
In this matter an employee of Harmony Gold Mining Co Ltd, (“the employer”) Mr. Young, was injured in a motor vehicle accident, which was caused by the negligence of the driver of another vehicle. The accident occurred in the course of Mr. Young’s employment. Mr. Young was therefore entitled to the benefits provided for in the Compensation for Occupational Injuries and Diseases Act 1993(hereinafter “COIDA”). As a result of the insurance policy held by the employer for purposes of compensating employees for occupational injuries, the Appellant, Rand Mutual Assurance Co Ltd, was obliged to compensate Mr. Young in the sum of R191 078,85 determined in accordance with COIDA by the Director-General.
Sections 29, 61 and 62 of COIDA provide that, if an employee is entitled to compensation in terms of the Act, the Director-General or the employer individually liable or the mutual association concerned, as the case may be, shall be liable for the payment of such compensation. The above was the basis upon which Rand Mutual Assurance Co Ltd compensated the employee.
The Respondent, the Road Accident Fund, was liable for the damages caused by the third-party driver’s negligent driving. The Appellant sought to recover the compensation paid to Mr. Young from the Respondent, relying on the provisions of Section 36(1)(b) of COIDA, which in summary provides that in the instance of an occupational injury caused in circumstances resulting in a third party (in this case the Road Accident Fund) being liable for them then, the Director-General or the employer by whom compensation is payable, may institute action against the liable third party for the recovery of compensation.
|The insured’s indemnity claim was paid in full. The insured was accordingly entitled to recover from the Respondent. As, the employer did not seek to recover the amount paid, the Appellant, without obtaining cession of such right to recover, sued the Respondent in its own name. This, according to the Respondent constituted non-compliance with the subrogation doctrine, and was fatal to it’s claim. This argument was agreed to by the Court a quo.
The legal issue before the court was whether the legal rule that an insurer must sue in the name of its insured forms part of our law and, if so, whether it can be justified.
| In response to the legal question the court took consideration of the history of the adoption of the English law of subrogation into South African law. In English law, subrogation, rests upon the common intention of the parties and gives effect to the principle of indemnity embodied in the contract.
The court further noted that it has never held that the insurer is not entitled to sue in its own name. When looking into the doctrine of subrogation, the court made reference to various countries and how their courts dealt with the doctrine. The English common law required the insurer to sue in the name of the insured, whereas American law adopted a different approach, whereby the insurer may institute litigation proceedings in its own name to protect litigants from harassment and avoid confusion over the identity of the real plaintiff. This appears to be similar to the position in Continental law.
The court referred to the author J P van Niekerk who contends that subrogation is a mere procedural device in the service of the indemnity principle. The court, agreeing with the viewpoint, then took consideration of whether the above mentioned procedural requirement was aligned with our Constitutional values and our law of procedure.
The court concluded that requiring the insurer to sue in the name of the insured is formalistic, creates anomalies in that it enabled the insurer to litigate without taking any risk as far as litigation costs are concerned.
The court was not willing to interfere with the prevailing practice within South Africa that insurance companies have to litigate in the name of the insured. The court clarified that the judgment did not aim to provide that the insurer must litigate in its own name and not in the name of the insured. What it did provide was that “unless the wrongdoer is prejudiced in a procedural sense, the courts may permit the insurer to proceed in its own name”.
The Court concluded that “the plaintiff was not non-suited by litigating in its own name, particularly since there was no apparent prejudice to the respondent”. The appeal succeeded and Rand Mutual was entitled to judgment.
Where an employer, an insured, does not desire to recover damages from third parties then the insurer may pursue the claim in its own name, provided that the wrongdoer is not prejudiced in a procedural sense.
Written by Musa Mathebula and Frank Sebatana