Will the recent ruling by the Appeal Committee of Insurance Disputes create an uninsurable risk for cargo claims in the Kingdom?
The right of subrogation in the Kingdom of Saudi Arabia (the Kingdom) is safeguarded under Article 20 of the Law of Control of Cooperative Insurance Companies. The article not only recognises subrogation as a right in the Kingdom for an insurer, but also gives the Insurance Dispute Committee (IDC) the jurisdiction to hear all subrogated claims.
The rules and procedures implemented by the IDC allow five (5) years in which to commence proceedings 'arising from insurance policies'. While it is clear that this five year time limit applies to all claims under insurance policies, what is less clear is whether it also extends to subrogated recoveries and, if so, to what extent. Well, that is until a recent decision by the Appeal Committee of Insurance Disputes (ACID) provided some much needed guidance.
In a recent ruling by the ACID in which it approved a judgement by the IDC of First Instance, it held that the insurer must file subrogated recoveries against the road haulier within three (3) months from the date of the road incident in order to reserve their rights of subrogation against the carrier, following which their subrogated rights would be time barred.
The three month limitation period in question is that at Article 27 of the Commercial Court Law 1930 which defines the period in which a consignee must file its claim against a carrier in relation to any cargo damage claim following an incident occurring within the Kingdom. While this particular case concerned a land transit incident in which valuable project cargo became a constructive total loss, the Article does not seem to differentiate between cargo damaged as a result of a land transit incident or at sea, providing the incident took place within the Kingdom.
The ACID's recent approach supports the position that the right of subrogation should be seen as an assignment by the insured (consignee) once payment has been received from the insurer, and that the insurer should not have any additional rights than those which the assignor had, even where such rights are transferred after the expiration of any applicable time limit.
This recent ruling is likely to create problems for re/insurers in the way they handle their cargo claims within the Kingdom. Despite an insurers best endeavours, it is highly unlikely that they will be able to investigate and settle a claim, and then pursue and secure a recovery (particularly if they are waiting for incident reports from the various Ministerial Departments), within three months of notification of the incident. Should this be the case then insurers are likely to be forced to secure their position by commencing proceedings (or requiring their insured to commence proceedings as the insurers are unlikely to have title to do so at that stage) within three months of the loss. In doing so, not only does it create a wholly unsatisfactory position for insurers as it will unnecessarily increase the costs for both the insured and insurers but it is also likely to dramatically increase the volume of claims before the local Courts.
This unsatisfactory position could be elevated further if it ultimately resulted in an uninsurable risk in that insurers may be reluctant to insure these risks where their subrogated rights are prejudiced by this potentially unworkable time limit.
With more project cargo, machinery, equipment and raw materials entering the Kingdom and being transported by road and sea, both local and international re/insurers should pay close attention to the ACID's recent approach as it could have a significant impact on their recoveries.