Supreme Court: Victim's Direct Claim Right Takes Precedence Over Insurer's Subrogation Right

Second Instance Remand for Failure to Review Victim's Direct Claim Rights

The Supreme Court has made its first ruling that in accidents involving multiple victims where the tortfeasor's liability insurance limit is insufficient to cover all damages, the direct claim right of the victims who have not been fully compensated takes precedence over the subrogation right of the insurer that paid the insurance benefits.

According to the legal community on the 22nd, the Supreme Court's Second Division (Presiding Justice Jo Jae-yeon) overturned the appellate court's partial ruling in favor of the plaintiff in the subrogation claim lawsuit filed by Hanwha General Insurance against Samsung Fire & Marine Insurance and DB Insurance, and remanded the case to the Incheon District Court.

On April 13, 2018, a large fire broke out at Ire Chemical, a factory located in the Tongil Industrial Complex in Seo-gu, Incheon, which recycled waste oil to produce cleaning oil. The fire was a major incident causing damages amounting to about 2.3 billion KRW to nearby factories, vehicles, and residents.

At the time, Ire Chemical was insured with three insurers?Samsung Fire & Marine Insurance, DB Insurance, and Hyundai Marine & Fire Insurance?each with a liability insurance limit of 300 million KRW, which was grossly insufficient to cover all damages.

Hanwha General Insurance, the insurer of the affected companies, paid approximately 119 million KRW and 16 million KRW respectively to two victim companies, totaling 135 million KRW, and then filed a subrogation claim lawsuit against Ire Chemical and the three insurers.

The first and second trials ruled in favor of Hanwha General Insurance.

The first trial court recognized Ire Chemical's negligence for storing highly flammable materials inside and outside the factory without installing fire detection facilities. However, considering that the buildings where the fire occurred and the surrounding buildings were densely packed, fire trucks had difficulty accessing due to vehicles parked on both sides of the road, most surrounding buildings were old and vulnerable to fire, and those buildings also stored flammable materials, the court limited Ire Chemical's liability to 70%.

Accordingly, based on this negligence ratio, the court held that Hanwha General Insurance, which paid the damages originally payable by Samsung Fire & Marine Insurance and DB Insurance to the victim companies, could exercise the insurance claim rights of the victim companies against those two insurers by subrogation.

The problem was that Samsung Fire & Marine Insurance and DB Insurance, the insurers of the tortfeasor Ire Chemical, were also insurers of the victim companies. Samsung Fire had already paid 1.6 billion KRW, and DB Insurance had paid 300 million KRW to the victim companies.

In other words, as the insurer of the tortfeasor company, they were obliged to respond to Hanwha General Insurance's subrogation claim, while simultaneously, as insurers of the victim companies, they had the right to claim subrogation against Ire Chemical or its insurers.

Both companies argued that their insurance payment obligations were extinguished by "confusion," a legal doctrine where claims and debts merge when they belong to the same person.

However, the court did not accept this argument.

Even if claims and debts belong to the same person, the claim should not be extinguished if there is a need to recognize the claim's continuation. The court reasoned that due to the coincidental circumstance that the defendant insurers were both casualty insurers and liability insurers, they should not receive preferential payment.

Accordingly, the first trial court ordered Ire Chemical, Samsung Fire & Marine Insurance, and DB Insurance to jointly pay Hanwha General Insurance approximately 135 million KRW. The claim against Hyundai Marine & Fire Insurance, which had deposited the remaining amount excluding the insurance payments made to some victim companies within the 300 million KRW limit, was dismissed.

The second trial, following appeals by Samsung Fire & Marine Insurance and DB Insurance, reached the same conclusion.

However, the Supreme Court's ruling differed.

The court held that the second trial erred in concluding that claims cannot be extinguished by confusion without examining whether the victims who were not fully compensated had exercised their direct claim rights against the defendant insurers.

The court stated, "If other victims exercise their direct claim rights for damages not compensated, the defendants can only receive insurance payments within the difference between the liability insurance limit and the total amount paid to other victims."

It further explained, "However, if no victim exercises the direct claim right, the subrogated claims and liabilities held by the defendants belong to the same person, resulting in the legal effect of confusion."

Finally, the court concluded, "Therefore, to determine the validity of this claim, it is necessary to examine the amount of damages of the victims who exercised direct claim rights and the scope within which the plaintiff and defendants can exercise direct claim rights," adding, "the appellate court's rejection of the defendants' confusion argument misunderstood the legal principles regarding the exercise of rights and confusion in subrogation when the total damages of multiple victims from a single insurance accident exceed the liability insurer's insurance limit, which affected the judgment."

A Supreme Court official said, "This is the first explicit ruling clarifying that when the liability insurance limit is insufficient to cover the total damages of multiple victims and the direct claim rights of victims and the insurer's claim rights conflict, the direct claim rights of the victims take precedence in principle."

This content was produced with the assistance of AI translation services.