The Nature of Insurer's Liability and its Impact on Selection Method of "Recoupment" and the Principle of Subrogation

One of the ambiguities existing in the insurance contract is the quiddity and nature of the insurer's liability in the insurance contract, which means whether insurer's payments is of the nature of a demand insured or real damage. The nature of the insurer's liability has a direct effect on the possibility of insured's referring to the tortfeasor and on the possibility of accumulating the damage imposer’s liability and insurer's liability (due to differences in origin). In this way, if the nature of the payments that the insurance company pays to the insured or the stakeholder is a credit (or savings or replacement of the contract), the injured party (the insured), after obtaining the insurance money from the insurer pursuant to contract, can refer to the tortfeasor because of the difference in the origin of liability (contractual and forcible) and the responsible person (insurance company and tortfeasor).

There are several legal systems to compensate for the insured’s losses, the most important of which include: 1. Selection: This means that the damaged party can refer to one of the responsible agents (insurer or tortfeasor) at his/her own selection. 2. Accumulation of benefits: This system is operative according to the principle of capital and, thereby, the damaged insured can also refer to the contractual legal system in addition to entitlement to refer to the forcible liability. 3. Recoupment: The contractual liability (insurer) can refer to the forcible liability after the loss and damage was compensated for and demand the tortfeasor for compensation for the payment already incurred. 4. Relieving the Tortfeasor’s liability: This means that neither of the parties are entitled to refer to the tortfeasor (Cane, 2006: 377; Lewis, 1998: 17). The principle of subrogation, which has been approved by Iranian legislatures, is a subset of the recoupment system and entails the fact that the insurer should refer to the tortfeasor while the damage was compensated for and amount paid to the insured should be claimed for refund from the tortfeasor. In domestic law, the principle of subrogation is viewed to be based on the rule of "double compensation prohibition " and "prohibition of unjust ownership" and is interpreted on the basis of recognizing the insurer's payment to the insured as "damages". In other words, when the insurer compensates for the insured's loss by paying for the damages, the insured can no longer refer to the insurer because one of the pillars of the claim is the civil liability of damages survival. Thus, when the insured's damages were paid by the insurer, the insured does not have the right to refer to the tortfeasor but the insurer can refer to the tortfeasor on behalf of him/her (Babaee, 2005: 25; Taheri, 2008: 22). In this research, for the following reasons, it was proved that the nature of the insurer's payment has been a "credit" and the above argument is not correct. First, according to Article 1 of the Insurance Law in 1937, insurance is a commutative contract and the insurer's indemnity is paid for the insurance premiums paid by the insured. In addition, the insurer's obligation originates from the insurance contract; therefore, the nature of the insurer's liability is contractual credit. Second, according to Article 30 of the Insurance Law in 1937, when a payment is settled by the insurer, the insurer has the right to refer to the tortfeasor on behalf of the insured. If, according to the well-known theory of nature of compensation in insurance, is assumed to be damage and reference to the tortfeasor entails the rule of "prohibition of double compensation", such a right will not be considered either for his/her subrogation (insurer) because the injured party’s claims are compensated for by the insurer’s compensation and it is not possible any longer to refer to the tortfeasor (originally or by subrogation). As a result, the nature of the insurer's payment should be considered to be based on credit and contract and there should be the possibility of referring to the tortfeasor on behalf of the insured. In other words, knowing the "nature" of the insurer's payment is the requirement for the justification of "principle of subrogation". Third, at the end of Article 30 of the Insurance Law in 1937, the legislator states that "the insurer will be the subrogation of the insured and if the insured takes any action contrary to the contract, s/he will be considered liable to the insurer". Any action contrary to the insured’s right, such as release from an obligation third party responsible and bringing an action for damage against the third party responsible by the insured (original) is valid when s/he has the right to quittance or initiation of lawsuit. If the nature of the insurer’s liability is damage and the insured has no right against the tortfeasor, how can s/he acquit the tortfeasor or claim any payment from him? Fourth, in some legal systems, such as the legal systems of the United States and Ireland, the injured party has the possibility to refer both to the operating losses (tortfeasor) and the insurer, and the system of "Collateral Benefits" is applied (English Law Commission's Consultation paper, 1997, No. 147, "Damages for Personal Injury: Collateral Benefits": P 75, At: www.lawcom.gov.uk). This suggests that the principle of subrogation is not due to the nature of damaging the insured's civil liability. What the insurer pays to the insured is the "credit" of the insured and the enforcement of the contract by the insurer; and the insured’s right to refer to the tortfeasor to receive "indemnity" is retained (which is referred to the tortfeasor by the insured in the "collateral benefits" system or by the insurer in the "recoupment" system on behalf of the insured.

The nature of the insurer's liability in the insurance contract is demand and contractual. In our law, the "Recoupment" system is chosen on how to refer to the tortfeasor, and the insurer, after being compensated according to the insurance contract for civil liability and to compensate for the power of subrogation from the insured, refers to the tortfeasor. Knowing payment, the "nature" of the insurer's liability, the possibility of applying any of the Selection systems, Accumulation of Benefits, the Recoupment and the Relieving the Tortfeasor’s liability can be applied according to the requirements of time and place. It is suggested that the "Accumulation of Benefits" system be specifically reviewed by the legislator.