REPUBLIC OF SOUTH AFRICA
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case Number : 565 / 03
In the matter between
SAMANCOR LIMITED Appellant
and
MUTUAL & FEDERAL INSURANCE
COMPANY LIMITED First Respondent
ALLIANZ INSURANCE LIMITED Second Respondent
SA EAGLE INSURANCE COMPANY Third Respondent
GUARDIAN NATIONAL INSURANCE COMPANY LIMITED Fourth Respondent
AIG SOUTH AFRICA LIMITED Fifth Respondent
ACE INSURANCE COMPANY LIMITED (formerly CIGNA
INSURANCE COMPANY LIMITED) Sixth Respondent
Coram : MPATI AP, STREICHER, CONRADIE, CLOETE JJA
and COMRIE AJA
Date of hearing
: 1 NOVEMBER 2004
Date of delivery : 30 NOVEMBER 2004
SUMMARY
Two insurers indemnifying insured against damage to same equipment – insurer who paid insured’s claim
seeking recovery from co-insurer – whether subrogation or contribution correct remedy against co-insurer.
_____________________________________________________________________________________________
J U D G M E N T
_____________________________________________________________________________________________
2
CONRADIE JA
[1] Seven years ago an emer gency pump that was to deliver oil to the bearings
of an alternator failed. Both had been supplied by IMS Engineering (Pty) Ltd. The
alternator was damaged. It was insu red under two policies. One was called a
‘Principal Controlled Construction Risks and Public Liability Insurance Policy’,
underwritten by the respondents (‘the work s policy’). The other was an ‘Assets
Insurance Policy’ underwritten by Westchester Insurance Company (Pty) Ltd (‘the
assets policy’). Under the assets pol icy Westchester fully indemnified the
appellant for the losses it had suffered as a result of the disablement of the
alternator.
[2] The appellant’s claim, the stated case tells us, is a claim pursued by
Westchester by way of a subrogation action in the name of the appellant. The
respondents’ special plea to the claim avers that havi ng been fully indemnified
under the assets policy the appellant cannot seek another indemnity from them for
the same loss; nor can Westchester by invoking a right of subrogation recover from
them what it has paid to the appellant: th e only permissible claim, they maintain,
3
would be one for a contri bution by Westchester in its own name against the
respondents as a co-insurer.
[3] The respondents’ point of view was upheld by the court a quo (Malan J)
who, after a scholarly review of Englis h and Commonwealth decisions, concluded
on the facts of the stated cas e before him that the obligations of Westchester and
the respondents were secondary and co -ordinate and that the payment by
Westchester discharged the respondents. 1 He upheld the respondents’ special plea
to the locus standi 2 of the appellant and conseque ntly dismissed its claim with
costs. It is with his leave that the appeal is before us.
[4] It is often said that payment by an insurer to his insured cannot be relied
upon by a wrongdoer because it is res inter alios acta, which of course it is, but
that does not seem to be the best way of lo oking at it. A better way of looking at it
is that proposed by Lord Hoffman in Caledonia North Sea Limited v British
Telecommunications plc (Scotland) and Others [2002] 1 All ER (Comm.) 321
(HL) at para 92:
‘Mr Keene deduces from this and other similar statements the general rule that when two or more
persons have separately agreed to indemnify someone against the same risk, payment by one
discharges the others .… It is certainly a gene ral principle, as he says, that a person who has
1 The judgment is reported as Samancor Ltd v Mutual and Federal Insurance Co Ltd (2003) CLR 349.
2 The true issue is not whether the appellant has locus standi but whether its particulars of claim disclose a cause of
action.
4
more than one claim to indemnity is not entitled to be paid more than once. But there are
different ways of giving effect to this principle. One is to sa y that the person who has paid is
entitled to be subrogated to the rights against the ot her person liable. The other is to say that one
payment discharges the liability. The authorities show that the law ordinarily adopts the first
solution when the liability of the person who paid is secondary to the liability of the other party
liable. It adopts the second solution when the liabi lity of the party who paid was primary or the
liabilities are equal and co-ordinate.’
[5] As a typical secondary debtor, an in surer may be in a position to reclaim
what it has paid.3 Where it can and does exercise a right of subrogation, insurance
law demands that it does so in the name of the insured. A right of subrogation can
be exercised against a primary debtor whet her the latter is a delictual wrongdoer or
a contractual defaulter. 4 But it cannot be exercise d by one secondary debtor
against another because payment by the one discharges the other. A subrogated
claim against a co-insurer would only be competent if the latter had undertaken
primary responsibility for a debt .5 Of course, the person whose wrongdoing
brought the debt into exis tence would also bear prim ary responsibility but nothing
prevents one debtor from undertaking prim ary liability with another. Thus a
contractual indemnifier may competently undertake primary liability for a debt
3 Where loss or damage is caused by an act of God there is no debtor other than the underwriter himself who is then
effectively a primary debtor.
4 Caledonia North Sea Ltd v London Bridge Engineering Co and Others [2000] Lloyd’s Rep IR 249 at 261 (2nd col)
263 (1st col) (per Lord Rodger); 277 (1st col) (per Lord Sutherland).
5 Caledonia North Sea Ltd v London Bridge Engineering Co and Others [2000] Lloyd’s Rep IR 249 at 283 (2nd col)
(per Lord Coulsfield).
5
created by another. Where such a (p rimary) indemnifier happens to be an
underwriter it is in the same position as a ny other primary debtor. The insurer and
the wrongdoer become co-principal debtor s each primarily liable for the whole
debt. In such a situation a secondary in surer who pays an insured’s claim acquires
a subrogated claim against the wrongdoer as well as against the insurer primarily
liable. A secondary insurer may also have a subrogated claim against an
indemnifier where the liability of the i ndemnifier is not primary in the sense
discussed above provided that the liability of the indemn ifier is not equal and co-
ordinate with that of the secondary insurer. That was the position in the Caledonia
North Sea case. The insurer of the operator of an oil platform that had been
extensively damaged in an explosion s ought to be indemnified by contractors
working for the operator on the oil platform for payments made in the settlement of
death and injury claims in respect of thes e contractors’ employees killed or injured
in the disaster. These claims were made on the basis of indemnity provisions in the
contracts entered into between the operat or and the contractors. As between the
insurer which had undertaken secondary liability and the contractor-indemnifier
the latter was primarily liable although as between the indemnifier and the person
responsible for causing the explosion the latter was primarily liable. It is instructive
to have regard to the English authoritie s that deal with when a claim based on
6
subrogation is competent and when a claim for a contribution must be brought. The
following is said in MacGillivray on Insurance Law 10 ed in para 22 – 24 at [569] :
‘Accordingly the insurer may require the assured to enforce a right to be indemnified against the
loss under an indemnity clause contained in a cont ract between the assure d and the indemnifier,
so long as the indemnifier is the party with primary responsibility for the loss in question. Where
the insurer and indemnifier have co-ordinate oblig ations to indemnify the assured, as where both
are insurers, the insurer who has paid the assu red should claim contributions from the other
indemnifier in his own name, since the assured no longer has a claim for indemnity.’
Bovis Construction Limited and Another v Commercial Union Assurance Company
plc [2001] 1 Lloyd’s Rep 416, a decision of the Queen’s Bench Commercial Court,
followed The Sickness and Accident Assurance Association v The General
Accident Assurance Corporation Limited XXIX Scottish Law Reporter 836, and in
doing so quoted from it the following paragraph:
‘In marine insurance a rule which has long been recognised is that when the insured has
recovered to the full extent of his loss under one policy, the insurer under that policy can recover
from other underwriters who have insured the same interests against the same risks a rateable
sum by way of contribution. The fo undation of the rule is that a c ontract of marine insurance is
one of indemnity, and that the insured, whatever the amount of his insurance or the number of
underwriters with whom he has contracted, can never recover more than is required to indemnify
him …. There is no reason in principle in my opin ion why the same rule should not be applied to
other classes of insurance which are also contr acts of indemnity …. The right of an underwriter
who has indemnified the insured to claim contribution from th e other underwriters cannot be
7
founded upon the doctrine of subrogation, because an assignee can have no higher right than his
cedant and a shipowner who has received full inde mnity from an underwriter can never make a
claim against another underwriter. The answer, therefore, to the claim of an underwriter who
had paid, if made only in the right and as assign ee of the assured, would be that the contract was
one of indemnity, and that the insured had already been indemnified.’
Lord MacKay in his speech to the House of Lords in Caledonia North Sea Limited
v British Telecommunications plc (Scotland) and Others [2002] 1 All ER (Comm.)
321 (HL) para 63 also commented on the The Sickness and Accident Assurance
Association case in these words:
‘Where there are co-ordinate indemnities for th e same loss it is clear that the doctrine of
subrogation cannot provide an answer, and that where one of the indemnifiers pays, the way their
liabilities inter se are decided is by an action of relief [fo r a contribution]. The principle of res
inter alios acta will not be of relevance in that situation where the overriding principle is that a
person cannot be indemnified twice over for the sa me loss, and therefore if one indemnifier has
made good the loss to the indemnif ied the rights of th e indemnified are no longer useful in
deciding questions between the indemnifiers.’
(See also Malcolm Clarke The Law of Insurance Contracts 4 ed para 28 – 29 at
945.)
[6] The appellant accepted that its cas e depends on establishing that the
respondent’s liability is not equal and co-ord inate with that of Westchester. The
clause in the works policy on which the appellant relies for its contention that the
8
liabilities are not equal and co-ordinat e is to be found among the General
Memoranda. It is headed ‘Memorandum 4 – subrogation’ and reads as follows:
‘It is hereby declared and agreed that notwith standing anything stated in the policy and subject
always to General Memorandum 1 and subject to the Conditions of the Contract, this policy shall
take precedence over any other insurance arranged by or on behalf of the Employer. In the event
of loss or damage which may be insured under any other policy of insu rance effected by the
Employer, the Insurers shall indemnify the Insured as if such other insurance did not exist.
Unless otherwise agreed by the Employer, the Insu rers waive all rights of subrogation or action
which they may have or may acquire against any of the parties comprisi ng the Insured or their
directors, agents or employees or their Insurers arising out of any occurrence on the Contract Site
in respect of which any claim is admitted here under or which but for the application of the
Deductible mentioned in the Schedule hereto would be made hereunder.’
[7] This clause, it is argued on behalf of the appellant, creates a hierarchy of
liability between insurers: any loss inde mnifiable under the works policy should
first be satisfied by the respondents irrespective of other policies covering the same
loss. From this it follows, so the argumen t proceeds, that had the appellant sought
an indemnity from the respondents they would not have been entitled to raise the
existence of the assets policy as a defen ce. The appellant called this ‘layered
insurance’. It undoubtedly is layered in surance but only in the sense that the
respondents and Westchester undertook seque ntial liability. The structure of the
9
insurance cover taken by th e appellant made the res pondents first-in-line and
Westchester second-in-line underwriters.
[8] As we have seen, only a secondary debt or has a right of subrogation and
then only against a debtor whose liability is not equal and co-ordinate. If the
respondents are shown to have renounced subrogation6 they would have renounced
a right that goes hand in glove with and depends upon secondary liability. That
would go a long way towards showing that they are not to be regarded as
secondary debtors but undertook primary liability.
[9] The ‘Insured’ in the works policy includes Gencor Limited and Billiton plc
and their controlled, managed, administered and subsidiary companies, as well as
persons and entities for whom they act as consultants and for w hom they have the
authority to arrange insurance. All of them are collectively referred to as ‘the
Employer’. Covered by the same insurance are all cont ractors and sub-contractors
undertaking work for and on be half of the Employer; added to these are, to the
extent required by any agre ement, persons like manufacturers or those undertaking
work at a contract site, tr ansporters and persons provid ing storage facilities and so
on, right up to project managers, architects, engineers and other professionals.
6 Something that they were perfectly entitled to do: MacGillivray on Insurance Law 10 ed para 22 - 33 at [582].
10
[10] Whilst it is true to say that, havi ng regard to the very wide ambit of the
insurance cover under the works policy, there are not many persons left against
whom a right of subrogation might be exercised, there is no renunciation in
General Memorandum 4 of the respondent s’ right of subrogation generally.
Against any wrongdoer who might happen not to be insured under the works
policy (and who is not a director, agent or employee of an insured) the right
remains unaffected. Except for directors, agents or employees, no wrongdoers are
exempt from facing a subrogated claim and even the exempted category only
enjoys immunity so long as the Employer (which means any one of the many
companies comprised by this descripti on and includes the appellant) does not
consent to their being sued by the respondents. The provision accordingly does not
go nearly far enough to establish that th e respondents had, exceptionally for an
insurer, accepted primary responsibility.
[11] The appellant contended that ac ceptance of primary responsibility by the
respondents as between themselves and We stchester is indicated by the use in
General Memorandum 4 of two phrases: ‘ .... this policy shall take precedence over
any other insurance arranged by or on behalf of the Employer’ and ‘ .... the
Insurers shall indemnify the Insured as if such other insurance did not exist.’
11
[12] Since an insured ma y, in the absence of a pro rata contribution clause or an
excess clause, freely choose which one of two or more co-insurers to sue, 7 each
policy issued by an insurer, in that sense, takes precedence over any other. It is the
insured who determines the precedence by d eciding which of several insurers to
sue. Once he has fixed his sights on an insurer of his choice that insurer must,
under the common law, and up to the lim it of the insurer’s liability under the
policy, indemnify him as though there were no other insurance. Had a claim first
been made on the respondents they woul d, even in the absence of General
Memorandum 4, not have been entitled to raise the existence of the assets policy as
a defence. It seems, however, that the a ppellant in effect contends that the phrase
‘as if such other insurance did not exist’ should be read to mean ‘as if the insured
had not been indemnified by another insurer’. In my view the phrase is not capable
of bearing such a meaning. It would of fend against one of the basic tenets of
indemnity insurance namely that an insure d is not permitted to recover more than
he has lost. The argument that these provisi ons were intended to introduce into the
policy a departure from the common law, a nd a radical departure at that, can
therefore not be accepted.
[13] The respondents’ approach has all along been that they and Westchester
were (secondarily liable) co-insurers, that their liabilities were equal and co-
7 MacGillivray on Insurance Law 10 ed para 23-1 at [613].
12
ordinate, that a contribution action was th e correct and only remedy and that, if
Westchester had claimed a contribution from them, and provided that their liability
was established, they would have had to make an appropriate contribution. To
meet this contention the appellant’s argume nt is that Westchester has no right to
claim a contribution: it was contractually so arranged that there would be no
overlap between the cover afforded by its policy and that afforded by the
respondents’ policy; there would accordingly be no double insurance.
[14] It is trite that indemnity policies may validly contain terms excluding rights
of contribution. 8 The provisions on which the a ppellant relies are the phrases
quoted in para [11] read with clause 13 of the assets policy. The only relevant part
of clause 13 of the assets policy is sub-paragraph [a] :
‘13. OTHER INSURANCES
[a] If the Insured holds any other valid and collectable insurance or which, but for the application
of any deductible, would have be en collectable, with any other insurer covering a loss also
covered by this polic y, other than insurance that is specifically stated to be in excess of this
policy or issued as a co-insurance of any peri l insured hereby, the insurance afforded by this
policy shall be in excess of, and shall not contribute with, such other insurance.’
8 Welford and Otter-Barry on Fire Insurance 4 ed 379; Malcolm A Clarke The Law of Insurance Contracts 4 ed 28-
9 at 945 and 28-9B at 948; Colinvaux’s Law of Insurance 7 ed para 8-41 p 190; Legal and General Assurance
Society Ltd v Drake Insurance Co Ltd [1991] 2 Lloyd’s Rep 36 at 39.
13
[15] The indemnity scheme adopted by the parties is uncomplicated. The
provision in the works policy that the Employer has to be indemnified ‘as if there
were no other insurance’ indicates that the works policy is a first-in-line and not an
excess policy. Read togeth er with the provision that the respondents’ cover takes
precedence over other insurance, the clause also serves to emphasize that there is
no question of an insured having to sue each insurer separately for its proportionate
share.9 The clause does not register a re fusal to contribute to a claim paid by
another insurer.
[16] If the appellant were to claim an indemnity from the respondents they would
themselves be liable for claims up to their indemnity limit of R135m without being
entitled to a contribution from Westchester. Beyond that they would no longer be
liable but Westchester, whos e liability under the assets policy is unlimited, would.
Clause 13 of the assets policy plainly me ans that the respondents can recover no
contribution from Westchester for any clai m paid by the former . The converse is
not the case. Contribution is an equitable remedy and although not based upon any
contractual relationship between co-insurer s, a court may nevertheless consult the
relevant insurance contracts in order to determine what contribution a co-insurer
9 According to Reinecke et al. General Principles of Insurance Law para 519, this type of provision is common in
insurance contracts. MacGillivray on Insurance Law 10 ed para 23-2; the authors of the chapter
on Insurance in Lawsa vol 12 para 519 agree.
14
who has paid should in fairne ss be allowed to recover. 10 I agree with the judge a
quo (at para [11] of his judgment) that precedence provisions and excess of loss
clauses determine relative c ontribution rights and do not convert the liability of a
co-insurer into a liability that is not equa l and co-ordinate with that of another co-
insurer.
[17] There is therefore no merit in th e contention that there was not double
insurance. Westchester fully indemnified the appellant in respect of the loss that it
had suffered. The appellant does not contend that Westchester was not obliged to
do so. On the appellant’s own case the loss was recoverable from either the
respondents or Westchester. It is plai n that as co-insurers the liability of
Westchester and the respondents was equal and co-ordinate. In these circumstances
Westchester by its payment in terms of th e assets policy discha rged not only its
liability to the appellant in terms of that policy but also the respondents’ liability to
the appellant in terms of the works po licy. Having paid a claim within the
respondents’ liability range because the respondents refused to do so, and being co-
10 Gordon and Getz The South African Law of Insurance 4 ed 287; Reinecke et al, General Principles of Insurance
Law para 516 p 367, para 520 p 369; Legal and General Assurance Society Ltd v Drake Insurance Co Ltd [1991] 2
Lloyd’s Rep 37 at 38. Eagle Star Insurance Co Ltd v Provincial Insurance Plc [1993] 3 All ER 1 (PC) at 8b-g;
Seagate Hotel Ltd v Simcoe & Erie General Insurance Company and Traders General Insurance Company (1980)
22 BCLR 374 at 378 confirmed on appeal (1981) 27 BCLR 89 (CA British Columbia); Family Insurance Corp. v
Lombard Canada Ltd (2000) 187 DLR (4th) 605 (CA, British Columbia) para [9] at 609-610.
15
ordinate debtors, Westchester should have brought a claim for contribution and not
a subrogated claim.11
[18] The appeal is dismissed with costs which include the costs occasioned by the
employment of two counsel.
J H CONRADIE
JUDGE OF APPEAL
CONCUR:
MPATI AP
STREICHER JA
CLOETE JA
COMRIE AJA
11 MacGillivray and Parkington on Insurance law relating to all Risks other than Marine 8 ed 761; Pacific Forest
Products Limited v AXA Pacific Insurance Co 2003 BCCA 241(CA,BC)(British Columbia).