Seven years prior to the appeal, an emergency pump that was to deliver oil to the bearings of an alternator failed, causing damage to the alternator. Both the pump and alternator had been supplied by IMS Engineering (Pty) Ltd. The alternator was insured under two policies: (1) a 'Principal Controlled Construction Risks and Public Liability Insurance Policy' underwritten by the respondents ('the works policy'), and (2) an 'Assets Insurance Policy' underwritten by Westchester Insurance Company (Pty) Ltd ('the assets policy'). Westchester fully indemnified the appellant for the losses suffered under the assets policy. The appellant then pursued a claim against the respondents, which was actually a subrogation action brought by Westchester in the name of the appellant. The works policy contained General Memorandum 4, which provided that the works policy would take precedence over any other insurance arranged by or on behalf of the Employer, and that the insurers would indemnify the insured as if such other insurance did not exist. The assets policy contained clause 13, which provided that the assets policy would be excess of, and not contribute with, other insurance (except co-insurance or specifically stated excess policies).
The appeal was dismissed with costs, including costs occasioned by the employment of two counsel. The court a quo's decision upholding the respondents' special plea to the locus standi of the appellant and dismissing its claim was confirmed.
Where two insurers provide indemnity cover for the same loss and their liabilities are equal and co-ordinate (as co-insurers), payment by one insurer discharges the liability of the other insurer to the insured. In such circumstances, the insurer who has paid can only recover from the co-insurer by way of a contribution claim in its own name, not by way of subrogation in the name of the insured. Subrogation is only available to a secondary debtor against a primary debtor, not between co-insurers whose liabilities are equal and co-ordinate. Precedence provisions and excess of loss clauses in insurance policies determine relative contribution rights between co-insurers but do not convert equal and co-ordinate liability into a hierarchy of primary and secondary liability. A provision that an insurer must indemnify 'as if such other insurance did not exist' means only that the insurer cannot raise the existence of other insurance as a defence when sued by the insured; it does not mean the insurer must indemnify an insured who has already been fully indemnified by another co-insurer, as this would violate the fundamental principle of indemnity insurance that an insured cannot recover more than the actual loss.
The court observed that while it is often said that payment by an insurer to the insured cannot be relied upon by a wrongdoer because it is res inter alios acta, a better way of understanding the principle is that there are different ways of giving effect to the principle that a person cannot be indemnified twice for the same loss. When the liability of the person who paid is secondary to another party's liability, subrogation applies. When the liability of the party who paid was primary or the liabilities are equal and co-ordinate, payment discharges the other's liability. The court noted that an insurer who renounces subrogation renounces a right that depends upon secondary liability, which may indicate an undertaking of primary liability, though this was not determinative in the present case. The court also observed that in the absence of pro rata contribution clauses or excess clauses, an insured may freely choose which co-insurer to sue, and in that sense each policy takes precedence over others at the election of the insured.
This case is significant in South African insurance law as it clarifies the distinction between subrogation and contribution remedies in the context of double insurance. It establishes important principles regarding when co-insurers have equal and co-ordinate liabilities versus primary and secondary liabilities. The judgment provides guidance on interpreting precedence clauses and excess of loss clauses in insurance policies, holding that such clauses determine contribution rights rather than creating a hierarchy of primary and secondary liability. The case confirms the fundamental principle that an insured cannot recover more than the actual loss suffered, and that where co-insurers have equal and co-ordinate obligations, payment by one discharges the other. It also clarifies that contribution, not subrogation, is the appropriate remedy between co-insurers with equal and co-ordinate liabilities, even where the policies contain precedence or sequencing provisions.