A recent Sao Paulo State Appellate Court case concerned a carriage of goods by sea from Port Everglades (United States) to the port of Rio de Janeiro (Brazil).
According to the insurer, the cargo had been damaged during carriage and therefore it was necessary to pay the assured the insurance indemnity. Having paid the indemnity, the insurer was subrogated to the assured's legal position and subsequently filed a lawsuit against the carrier, claiming reimbursement for the payment.
The plaintiff alleged that the carrier had been contracted for the carriage of goods by sea and that, after discharge in May 2017, the terminal stated that:
- the container had been damaged by leakage; and
- the cargo's weight had changed.
The plaintiff sustained that, after the cargo had been delivered to the consignee, some of the goods were verifiably damaged and were therefore rejected. Due to the alleged cargo damage, the insurer paid the indemnity and, as it was subrogated to the assured's legal position, filed suit against the carrier, claiming reimbursement for the payment.
Accepting the carrier's defence, the first-instance judge rejected the claim on the grounds that the insurer had failed to send the carrier a letter of protest within 10 days of the date on which the goods were discharged, as required under Article 754 of the Civil Code.
In June 2019 the 19th Chamber of the Sao Paulo State Appellate Court upheld the first-instance decision, reaffirming the need for insurers to present a timely letter of protest in order to hold a carrier liable for alleged cargo damages.
The court held that, as the insurer had been subrogated to the assured's legal position, it had no basis on which to defend its failure to present a protest letter for the damaged cargo in the required period.
The court further claimed that, under Article 786 of the Civil Code, the right of subrogation based on insurance payments is "in the rights and actions that compete to the assured against the one that caused the damage". Therefore, the right of subrogation exists only if the right of reimbursement still applies by the time that the insurance indemnity is paid. Therefore, where the right of reimbursement is inapplicable due to the absence of a protest letter or is time barred due to the assured's negligence, the subrogation right will not apply.
This decision sets an important precedent in recognising that subrogation cannot be used to reinstate a right that no longer applies where a rights holder fails to observe a legal requirement. Therefore, subrogated insurers assume the same rights and limitations as assureds.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.