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The Morganite principle – revisited

No – Morganite is not some new material that erodes Superman’s powers. Rather, it is a colloquial reference to the decision of Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Limited (1988) 5 ANZ Ins Cas 60-883. In essence, Morganite is authority for the proposition that, where a wrongdoer settles with an insured, an insurer’s right of subrogation to take recovery action against that wrongdoer will not be defeated where a wrongdoer was aware (i) that payments had been made by the insurer to the insured, and (ii) of the rights of the subrogated insurer. This principle was recently invoked to uphold the setting aside of a consent judgment in the decision of Chand v Zurich Australian Insurance Limited [2013] NSWSC 102.
 
The Chand proceedings arose due to a motor vehicle accident. A company’s vehicle was damaged in the accident. The repairs to the company’s vehicle were paid by the company’s insurer, Zurich, who in turn (and pursuant to its right of subrogation) demanded reimbursement from Mr Chand. In the meantime, the company sued Mr Chand for certain uninsured losses (namely, rental car costs). Before Zurich commenced proceedings to recover the cost of repairs, Mr Chand (by his own subrogated insurer, AAMI) settled the action for rental car costs and filed a consent judgment in the Local Court. Given the doctrine of merger, so long as the judgment remained, Zurich was unable to commence separate subrogated recovery proceedings against Mr Chand for the cost of repairs.
 
Zurich, by summons in its own name, successfully applied to set aside the consent judgment in the Local Court. Mr Chand (that is, AAMI) appealed to the Supreme Court. In dismissing the appeal, the Supreme Court confirmed that, on the facts of the case (including that Mr Chand/ AAMI was/ were aware of the payments made by and the rights of Zurich), the Morganite principle applied such that the consent judgment had been irregularly obtained and was against good faith. The consent judgment was therefore set aside pursuant to rule 36.15 of the Uniform Civil Procedure Rules 2005 (NSW).
 
This case is another salient reminder for practitioners (especially those who act for or against insureds or insurers) to be well appraised of the issues that may arise when both insured and uninsured losses are at stake – along with how those issues may be resolved. Click here to read the judgment.

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