Under Article 43 of the Spanish Insurance Contract Act the insurer cannot exercise any subrogation rights that will prejudice the insured. In this sense, the Article provides that the insurer shall not have the right of subrogation against any person whose acts or omissions give rise to liability on the part of the insured.
The above implies that, in Spain, there is a commonly held view that an insurer cannot bring a recovery action against the insured's employees or against any other person who is a dependent of the insured.
However, the mentioned Article 43 makes provision for two exceptions to the prohibition on the subrogation of the insurer against the person for whose actions the insured is liable, namely:
- When the liability derives from an act of bad faith committed by that person; or
- When the liability of that person is covered by an insurance contract. In that event, subrogation shall be limited by the terms and conditions of that contract.
Consequently, insurers are entitled to recover from the employees or dependents of the insured, provided that those individuals' liability is covered by an insurance contract. Nonetheless, two important considerations should be taken into account:
- The extent of the recovery would depend on the terms and conditions of the policy covering the liability of the person responsible for the loss.
- The courts require that the individual be covered by an insurance contract for liability deriving from his own actions; therefore, a policy covering the liability of the insured (company) for the acts and omissions of its dependents would not meet the requirements of Article 43.
Despite the substantial benefit that this kind of recovery could have for insurers, it is not a common practice in Spain and, thus, there is very limited case law on this issue. The rulings mentioned below are some of the very few examples of this type of subrogation action in Spain:
- Barcelona Court of Appeal Ruling of 28th January 2009:
In this case, the material damage insurer of an owner's association, after paying compensation for damages caused as a result of a fire, brought a recovery action against the owner (and therefore an insured under the policy) that was responsible for the fire.
The Court of Appeal granted the insurer's claim due to the fact that the owner (a car repair shop) was covered by a liability insurance contract, this being one of the exceptions established in Article 43.
- La Coruña Court of Appeal Ruling of 11th December
The Court granted the subrogation claim of the liability insurer of a drilling and blasting company against the employee of that company who was responsible for the damages caused as a result of a negligent out of time explosion. Again, the Court concluded that this recovery action against an employee of the insured was possible because the employee was covered by a liability policy.
- Madrid Court of Appeal Ruling of 29th January 2013:
In this case, the insurer of a construction company brought a subrogation claim against the technical architect (which had contracted with the construction company) that was responsible for the loss. Since the technical architect was covered by his own liability policy, the Court concluded that the insurer was entitled to exercise this subrogation right.
In conclusion, there are legal grounds in Spain for insurers to legitimately bring a recovery action against the employees and dependents of the insured (and against their liability insurers1).
Therefore, insurers would be well advised to consider this type of subrogation action before closing their files. Among the issues to be analysed, it should be ascertained whether, at the time of the loss, the employee or the dependent was insured by a policy which would cover his civil liability and which might be triggered by his own actions. Even if this requirement were fulfilled, given the limited case law on this issue, exercising this type of recovery action would not be without its potential difficulties, so it must be carefully prepared and monitored to be successful.Footnotes
1 In Spain, under the terms of Article 76 of the Spanish Insurance Contract Act, a prejudiced party can bring a direct action against the civil liability insurer of the individual or entity that caused the claimed damage.
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