Scope and Limitations in Insurer Subrogation by Double-Hatted Insurer's Merger Defense in Civil Law

Abstract

As the culture of risk transfer and management through insurance spreads and becomes universal among individual economic agents, the emergence of the double-hatted insurer (hereafter, “DI”), who assumes the position of both the tortfeasor's liability insurer and the victim's property insurer, is increasingly observed. This trend gives rise to new issues concerning the DI's subrogation after indemnifying the insured as of property insurer. For instance, it is not easy to clearly interpret whether the DI can defend against the victim's direct claim based on the legal principles of subrogation or merger in civil law, or to what extent the DI can avoid the responsibilities they should bear as a liability insurer based on its subrogation right. In this paper, an attempt has been made to analyze and seek solutions to the above issues related to the insurer's subrogation under simple assumptions in order to facilitate a straightforward understanding of the controversies associated with insurer subrogation and victim's direct claim. Furthermore, through an analysis of two recent Supreme Court cases involving the same issues, if interpreting that the liability insurer can prioritize the application of subrogation through the principle of merger, it was confirmed that the substantive function of the victim's direct claim, which was legislatively enacted in the Commercial Act to better protect the victim, cannot be properly exercised and that the DI's subrogation rights can be limited to ensure the adequacy of liability insurance coverage when the victim's direct claim is involved. Especially, the recent Supreme Court ruling is significant in that it not only aims to maximize insurance benefits from the perspective of the ‘insured,’ but also strives to ensure the maximum utility of liability insurance from the perspective of the ‘victim.’ Considering the purpose of the victim's direct claim in the Commercial Act, it is noteworthy that the subrogation rights of the DI should also step back to some extent to facilitate the victim's damage recovery.