In this recent Victorian Supreme Court case, Bupa successfully brought an action against the insured's estate claiming that its right of subrogation was prejudiced by the terms of settlement entered into by the insured’s estate.

From 2005 to 2010 Bupa paid the insured under his health insurance policy for ongoing treatment required due to complications arising out of surgery.  In 2008 the insured sued the surgeon for common law damages for negligence, including recovery of those expenses paid by Bupa.

The insured died in 2010 and his estate settled with the surgeon.  Once Bupa found out that the proceeding had been settled, it sought to exercise its right of subrogation to recover the expenses paid by it and issued proceedings against the insured’s estate.

The Court ultimately held that Bupa was entitled to exercise its right of subrogation, and that there was no term in the insurance policy which excluded this right even though the benefits which Bupa had paid the insured were not strictly in accordance with the terms of the policy.

The Court found that the deed of release entered into by the insured’s estate prejudiced Bupa’s right to recover monies paid to the insured. Accordingly, the insured’s estate was liable to repay Bupa in full.

Bupa Australia Pty Ltd v Shaw & Anor [2013] VSC 507

An insurer which is aware of an insured pursuing a legal action against a third party should assert its subrogated rights and remain in contact with the insured or the insured’s lawyers in relation to the status of the legal proceeding. 
The doctrine of subrogation is alive and well! This decision follows on from a similar decision in Western Australia in Insurance Commission of WA v Kightly. In both cases the court ordered that the insured fully reimburse the insurer out of the proceeds of the personal injury litigation.