Inter-Company Agreement on the Review of Motor Insurance Subrogation Disputes

Where more than one insurer is involved in a motor accident, Korean insurers have entered into the “Inter-Company Agreement on the Review of Motor Insurance Subrogation Disputes”, which governs matters such as the order in which the insurers compensate the victim and the resulting recovery procedure. In practice, however, insurers are sometimes found to have paid compensation and pursued recovery in a manner different from that Agreement. It has been disputed how a breach of the Agreement in such cases affects the insurers’ rights of recourse.

Recently (on 25 March 2021), the Supreme Court ruled on the Inter-Company Agreement on the Review of Motor Insurance Subrogation Disputes as follows.

Supreme Court Decision 2019Da208687, 25 March 2021

Facts

A vehicle insured by Insurer B and driven by A collided with a vehicle insured by Insurer D and driven by C. E, A’s younger brother, who was a passenger in the vehicle insured by Insurer B, was injured. Insurer D paid insurance proceeds, including medical expenses, to the victim E’s side, and then brought an earlier action against A and Insurer B claiming recovery. In that earlier action, the court found A’s share of fault to be 50%. In accordance with that judgment, Insurer B, as A’s insurer, paid the recovery amount to Insurer D on A’s behalf. Insurer B then sued Insurer D for damages, alleging that Insurer D, as the first-handling insurer under the Inter-Company Agreement on the Review of Motor Insurance Subrogation Disputes (the “Agreement”), had breached a provision of the Implementing Rules of the Agreement governing, among other things, the recovery procedure where there is fault on the victim’s side.

Supreme Court Ruling

The “Priority Compensation Handling Standards” in the Implementing Rules of the Agreement set out, where more than one member insurer is involved in a single traffic accident, the order among the member insurers in which the victim is to be compensated and the resulting recovery procedure. The Supreme Court took into account the following points:

• Neither the Agreement nor its Implementing Rules, on which the Priority Compensation Handling Standards are based, contains anything stating, or capable of being interpreted to mean, that the first-handling insurer’s exercise of its right of recourse against the subsequent-handling insurer is restricted if the first-handling insurer breaches the provision in question.
• The main purpose of the Agreement and its Implementing Rules is to ensure prompt compensation of victims. It would therefore be inequitable to penalise a first-handling insurer that promptly paid insurance proceeds, and to confer an unintended benefit on the subsequent-handling insurer, on the ground of a breach of formal procedure.
• The provision in question, which forms part of the Priority Compensation Handling Standards, does not expressly state that, if the first-handling insurer breaches it, the first-handling insurer’s right of recourse against the subsequent-handling insurer is extinguished or its exercise is restricted.

In light of these points, the Court held that even if the first-handling insurer breaches the provision, the only consequence is that it is liable to a sanction payment under Article 30 of the Agreement. Further, the Agreement and its Implementing Rules, including that provision, are a contract among the member insurers and therefore cannot apply to third parties that are not members, such as insureds. Accordingly, once the first-handling insurer has compensated the victim for the loss, any breach of the provision in the course of doing so does not prevent it from exercising its right of recourse against the insured of the subsequent-handling insurer, who is a joint tortfeasor. On that basis, the Court held that Insurer D, as the first-handling insurer, could not be regarded as liable for damages.