1、 Case assumption

A purchased property insurance from Company A, and during the insurance period, there was a fire accident. After evaluation, the loss amount was 1 million yuan, of which 200000 yuan belonged to non insurance related losses. Due to issues such as insurance coverage ratio and deductible rates, A actually received 500000 yuan in insurance compensation. The fire was caused by tenant B. A and Company A now wish to file a claim against B.

Both parties will discuss whether to file a lawsuit for compensation, on whom to file the lawsuit, and the plan for the lawsuit.

2、 Discussion on Issues Related to Litigation Procedures

Both the insurer and the insured file a lawsuit against the responsible party. Depending on the actual subject of the lawsuit, it can be distinguished as either each party filing a lawsuit in their own name or both parties jointly deciding to file a lawsuit in one party's name.

（1） Initiate a lawsuit in the name of one party

The situation where the insurer and the insured negotiate to file a lawsuit in the name of one party exists in practice. The insured and the insurer agree that after the insurer pays the insurance benefits, if both parties conceal the fact that there is insurance or compensation has been paid, or if the insurer issues a document of equity transfer, the subrogation right will be transferred to the insured. The insured will initiate the lawsuit, and the insurer will develop a litigation strategy. The insurer and the insured will pay the litigation costs proportionally. In the final internal settlement between the two parties, both parties will share the benefits and risks of the lawsuit.

The debate over the nature of subrogation rights is determined by the Insurance Law and its judicial interpretations as a statutory transfer of creditor's rights, with the core being to transfer the compensation claim rights that originally belonged to the insured to the insurer (Civil Trial Division 2 of the Supreme People's Court: "Interpretation and Use of the Judicial Interpretation of the Insurance Law (II) of the Supreme People's Court", People's Court Press, 2015 edition, page 373). After the insurer compensates, the relevant rights and interests have automatically transferred. At this time, the insured conceals the fact of receiving compensation and files a lawsuit against the responsible party for all losses, lacking a corresponding basis for claiming rights.

We believe that the transfer of statutory debt does not exclude the insurer from disposing of the corresponding debt after obtaining it. If the insurer transfers the subrogation right obtained to a third party in the agreed form, it should not violate legal provisions (which in fact provides conditions for the insurer's debt packaging business). After obtaining the claim rights transferred by the insurer, the insured may file a lawsuit for the losses that they have not compensated for and the rights transferred by the insurer. In terms of procedure, we believe that it does not violate the provisions of current laws.

（2） Both parties will sue in their own names

In practice, it is more common for both the insurer and the insured to file lawsuits in their own names. Two different cases inevitably involve the issue of the order of filing and trial time. Given that the jurisdiction of cases involving the insurer's subrogation rights follows the jurisdiction of the insured's right to make claims against third parties, two different cases are usually handled by the same court.

1. Merger review

The mode of joint trial is to have the insured and the insurance company as joint plaintiffs, and the responsible third party as the defendant. Article 221 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China stipulates that "if a dispute arises based on the same facts and the parties bring separate lawsuits to the same people's court, the people's court may consolidate the proceedings." The Shanghai High Court's opinion on this is that "the subject matter of the insurer's subrogation lawsuit and the insured's compensation lawsuit against a third party are different. The insured and the insurer may bring separate lawsuits against the third party, and the court may also consolidate the proceedings in accordance with the law

At this point, it is necessary for us to discuss whether the corresponding conditions for the merger trial have been met. As for the case mentioned at the beginning of the article, the basic relationship between A and B is infringement, and the cause of action is a property damage dispute. According to the internal division of the court's case trial, it belongs to the second civil court for trial, while the dispute between Company A and B is the insurer's subrogation right dispute. The superior cause of action is classified as an insurance contract dispute, which belongs to the third civil court or the financial court for trial. The thinking of different courts for trial is different, whether civil thinking or commercial thinking is used, and there are certain differences between the two. There are exceptions as well. In cases where a court is dispatched as the jurisdictional court to hear, it is possible for two cases to be heard by the same judge.

We believe that although there are certain benefits to combining the two cases for trial, such as avoiding cumulative litigation and saving judicial costs, the litigation objects of the two cases are different, and the basis of the claims may not be the same. The factual elements of the cases on which they are based are also different, and a cautious attitude should be taken towards whether they should be combined for trial.

2. Trial first, suspend trial first

This situation usually manifests as the case between the insured and a third party being tried first, and the insurer's right of recourse case being suspended from trial. This kind of suspension is not necessarily a suspension in the sense of litigation law (which may not be ruled upon), but more of a substantive suspension, that is, waiting for the results of the previous case before making a judgment on the right of recourse case.

Article 150 of the Civil Procedure Law of the People's Republic of China stipulates that this case must be based on the result of the trial of another case, and if the other case has not been concluded, the trial of this case may be terminated. Is there a case where the outcome of one claim is based on the outcome of another claim between the right of recourse case and the insured's claim against the responsible party?

We believe that the outcome of the insured's claim against a third party is undoubtedly useful for the insurer to exercise its subrogation right. When the insured's lawsuit request is supported by the people's court, the insurer can file a lawsuit based on the same claim basis and use the facts stated in the effective judgment document as the evidentiary facts in favor of its own recovery. When the insured's lawsuit request is not supported by the people's court, the insurer may adjust the litigation strategy or make a decision to waive the claim based on existing judgments.

However, cases where the insurer exercises subrogation rights are not based on the judgment of the insured's claim against the responsible party. The case where the insured claims compensation from the responsible party is rejected by the court due to exceeding the statute of limitations. Depending on the starting point of the statute of limitations for the insurer's subrogation right, it is also possible for the insurer's claim to be supported by the court. There is no necessary connection between the two cases. The case of the insurer's subrogation right is judged first, and the case of the insured claiming compensation from the responsible party is judged later, which does not violate the legal provisions.

3. Conduct independent trials separately

Independently hear each case according to its own procedures. The insured may have competing claims against third parties. Taking the case at the beginning of the article as an example, A may demand compensation from B based on the fact of infringement, and Company A may demand compensation based on B's breach of contract against A. The results obtained from different claims may not be the same.

When conducting independent trials, it is necessary to consider the consistency of the judgment scale to avoid the occurrence of different judgments in similar cases.

（3） Handling of the situation where one party sues and the other party does not sue

Similar cases may also encounter situations where the insured and the insurer file a lawsuit while the other party does not. In this situation, the first procedural issue to be addressed is whether the court should add the parties involved

1. Add or not add

The guidance of the Shanghai High Court on this issue holds that if the insurer or the insured files a separate lawsuit, the court should not proactively add the other party as the plaintiff.

We believe that this opinion is reasonable. The provision in Article 132 of the Civil Procedure Law of the People's Republic of China stipulates that if a party who must participate in a joint lawsuit does not participate in the lawsuit, the people's court shall notify them to participate. The prerequisite for its application is that joint litigation is necessary. There is no necessary condition for joint litigation between the insured's right of claim and the insurer's right of subrogation.

The court should not proactively add the plaintiff, but may add a third party according to the needs of the case or clarify the parties' application to add a third party based on their authority.

2. The insurer sues, but the insured does not sue

The premise of the insurer's subrogation right is the existence of the basic claim right, that is, there must be a corresponding insured party in the insurance contract.

In the event of an insurance accident, the insured's loss may be due to insufficient insurance coverage, the loss of property that does not belong to the insured subject matter, deductibles, and other circumstances that have not been compensated.

The opinion of the Shanghai High Court on this issue is that if the insurer initiates a lawsuit for insurance subrogation rights alone, the court should review whether the insurance contract constitutes insufficient insurance. In order to prevent the insurer's exercise of subrogation rights from affecting the insured's right to claim compensation, the court may, in accordance with Article 56 (2) of the Civil Procedure Law, notify the insured to participate in the litigation as a third party without independent claim rights.

Notify the insured that they may not come. Some insured persons and third parties have a relationship, although not a community of shared interests, there may be a long-term and stable cooperative relationship. At this point, the insured may choose not to participate in the lawsuit based on long-term commercial interests. At this point, the result of the absence lawsuit of a third party without independent claims can be applied.

3. If the insured sues, the insurer will not sue

It is natural for the insured to sue before receiving insurance compensation, and there is no issue of subrogation by the insurer. It is not uncommon for the insured to sue the responsible third party before the insurer after receiving compensation.

We believe that the insurer is presumed to know or should have known about the subrogation right. The failure to initiate the right of claim or the failure to initiate the right of claim in a timely manner should be the result of careful consideration and constitutes a disposition of the right. At the same time, the insurer's failure to participate in the lawsuit generally does not lead to difficulties in finding relevant facts and damages the insurer's rights. In this case, the insurer may not be notified to participate in the lawsuit.

Source: No litigation