On 22 September 2014 the Section 25 of the Appeal Court of Madrid issued a resolution concluding that the insurance company, which brought a recovery action against a third party after paying the indemnity to its insured, has to prove not only the payment made to the insured party but also the fact that the loss was duly covered by the insurance policy.
This resolution also stipulates that if the insurance company is not able to evidence that the compensation was duly paid out to the insured, the judge could reject the recovery claim due to a lack of legal standing of the insurance company.
It is worth highlighting that until this resolution there were not many decisions supporting this argument. The former general criteria was that for the recovery action to succeed, the insurance company only had to evidence the payment of the loss, regardless if the loss was effectively covered in accordance with the terms and conditions of the insurance policy.
Nonetheless, the said resolution of the Appeal Court of Madrid is based on the resolution handed down by the Supreme Court dated on 5 March 2007. This resolution also considered absolutely necessary that the loss had been correctly covered taking into account the content of the insurance policy. Additionally, this same quarrel has been published in another decision of the Supreme Court dated on 19 June 2007.
Consequently, to be mindful, we have to conclude that the burden of proof in a recovery action relies on the plaintiff (the insurer), who is obliged to demonstrate the existence of coverage under the insurance policy. Therefore, if the plaintiff does not evidence that the compensation intended to be recovered was duly paid out to the insured pursuant to the coverage of the insurance policy, the courts may consider that the plaintiff is not entitled to bring a subrogation action against the third party liable of the damages caused to the insured.
Accordingly, with regard to recovery actions that are brought by virtue of the subrogation right foreseen under the Insurance Contract Act, the insurer shall submit with its claim the terms and conditions of the insurance policy that evidence the insurance nature of the compensation being recovered. Thus, the proof of the payment of the loss could not be deemed sufficient for the court to uphold the recovery action.