Chand v Zurich Insurance

In a judgment handed down in the NSW Supreme Court, the Court was asked to determine whether an action for recovery of repair costs may be sought by an insurer, under its right of subrogation, after the settlement of recovery of rental car costs had been already finalised by consent judgment.

Adams J determined that there can be no splitting of actions for the recovery of repair costs and the recovery of rental costs, rather judgment for the first claim will preclude the second claim unless the defendant was aware of both claims at the time of the first settlement - as per the ‘Morganite’ principle.Zurich's insured, Bazetta, had claimed damages for rental car costs from AAMI's insured, Chand, who was the driver at fault in a motor vehicle accident. Bazetta's rental car claim was settled. The Supreme Court held that at the time of the settlement of the rental costs claim, AAMI was aware of Zurich's intention to sue AAMI's insured for the vehicle repair cost, which rendered the release and the Local Court consent judgment invalid. Zurich sought to set aside the judgment and then amend  Bazetta's Statement of Claim seeking rental car costs, to include the repair costs.

Under s 24 of the Civil Procedure Act,  if a person splits any cause of action against another person and judgment is given or entered, the other person is entitled to judgment in any other proceedings. However, under the ‘Morganite’ principle, as described by Campbell J in Le v Williams [2004] NSWSC, “a release given to a party in default under a contract will not bind a subrogated insurer if at the time of the release, such party was aware that payments had been made by the insurer to the insured and of the rights of the subrogated insurer.”

The Court set aside the judgment as it had been entered into “against good faith” under rule 36.15 of the Uniform Civil Procedure Rules and consistent with the ‘Morganite’ principle.