Subrogation: allocation of recoveries

It is a basic principle of insurance law that the assured is entitled to an indemnity. If sums are received from a third-party source that go to reduce the insured loss, then the insurer is entitled to deduct those sums in order to hold the assured to an indemnity. The same principle applies if the third-party sums are received after the insurers have paid: the insurers are entitled to the benefit of those sums but not beyond the point which deprives the assured of an indemnity.

In Royal & Sun Alliance Insurance plc and Others v Textainer Group Holdings Ltd and Others [2024] EWCA Civ 547; [2024] Lloyd's Rep IR 465 the questions for the Court of Appeal were: (a) how these principles applied where the insurance was arranged in excess layers; and (b) whether the indemnity principle was to be modified where the policy was subject to average under section 81 of the Marine Insurance Act 1906.