Res Judicata insured and uninsured losses

An issue that commonly arises in insurance recoveries is the failure of the plaintiff to realise insured and uninsured losses.

An insured person under an insurance policy is only covered for specific losses in accordance with the insurance policy. A motor vehicle insurance policy for example may cover the insured for damage to the insured vehicle and third party loss/damage but not for a replacement hire vehicle.

One of the problems that arises is when the insured person commences proceedings against the at-fault party for their uninsured losses without taking into consideration the insurers right of recovery. Conversely, the insurer may also commence legal proceedings against an at-fault party for the insured losses by way of subrogation without taking into consideration the insured’s right of recovery for uninsured losses.

If any party fails to act in time and a judgment is secured under the insured’s name for either the uninsured losses or the insured losses only, the principle that a cause of action may not be litigated twice may operate as a bar to any further action being taken under the insured’s name against the at-fault party. A second action is liable to be struck out by the court for res judicata and an abuse of the court process. Although the court has discretion to set aside the original judgment by application, there is no guarantee that the judgment will be set aside. The costs implications of going through such process is a further hurdle that needs to be considered.

The terms of the insurance policy should generally outline that the insured is not to commence proceedings without the knowledge of the insurer. However, the insurer cannot force the insured person not to commence proceedings for their uninsured losses.

The insured and the insurer should both put each other on notice prior to filing any court proceedings.