The subrogation recovery action is provided for by article 95 of the Insurance Act of 4 April 2014 (the Insurance Act ), which states the following:

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1 BELGIUM Lydian Hugo Keulers & Anne Catteau 1. Does your jurisdiction grant insurers rights to pursue recoveries in respect of losses suffered by the insured which the insurer has indemnified ( rights of recovery )? 1.1. If the answer is yes, do such rights arise pursuant to statute or case law? The subrogation recovery action is provided for by article 95 of the Insurance Act of 4 April 2014 (the Insurance Act ), which states the following: In the event of any payment under the policy, the insurer shall be subrogated to the extent of such payment to all the insured s and/or insured affiliates rights of recovery. If, due to the insured or any insured affiliate, the subrogation cannot result into satisfactory consequences for the insurer, the insurer can reclaim indemnification to the amount of the disadvantages. The subrogation cannot detriment the insured or any insured affiliate who obtained only partial indemnification. In this case, they can exercise their rights to the amount of indemnification they are entitled to, prior to the insurer. The insurer has no claim neither on the relatives in direct ascending or descending line, spouse and direct in-laws of the insured, nor on his residents, his guests and domestic staff, save for malicious intent. The insurer nevertheless has a claim on these persons if their liability is effectively covered by an insurance agreement. 2. What is the nature and scope of the rights of recovery? In particular: 2.1. Which types of rights or claims of the insured can the insurer pursue using its rights of recovery? The subrogation action can be pursued as regards any insured s rights for compensation either on a contractual or on a tort basis Are there any types of rights or claims of the insured which the insurer may not pursue using its rights of recovery, if so, what are they (in general terms)? Article 99 paragraph 4 Insurance Act provides that the insurer is not allowed to exercise its subrogation right on the relatives in direct ascending or descending line of the insured, on the insured s spouse and direct in-laws, nor on their residents, guests and domestic staff, save for malicious intent Is there a prescribed time period (for example, a limitation period) within which the insurer must pursue its rights of recovery? As the insurer exercises the insured s right in its place, the limitation period corresponds to the limitation period of the action in which the insurer is subrogated by way of payment made. For contractual claims this amounts generally to a ten-year time limit, and for claims based on tort it is five years, unless the tortious behaviour would also constitute a criminal offence. 12

2 3. What, if any, criteria must be fulfilled in order for the insurer to be entitled to exercise its rights of recovery? There are two types of requirements to be fulfilled in order for the insurer to exercise its subrogation action namely: the common requirements applicable to any subrogation; and the particular requirements applicable to the legal subrogation based on article 95 of the Insurance Act. Common requirements Valid and actual payment The insurer must have made a voluntary, valid and actual payment and the subrogation must be concomitant with this payment. There are however a few exceptions provided by law regarding work accidents in which case the worker s compensation insurer is subrogated in the rights for the capital of the income which will be paid by the insurer to the victim in the future. The insurer must not pay its own debt but the third party s debt towards the subrogating creditor (the insured) This requirement explains the reason why there is no possible subrogation in favour of an insurer that pays an indemnity pursuant to a person s insurance or an insurance that does not have an indemnity character, as this insurer is legally considered to pay its own debt to the insured. The subrogation recovery action however may apply to a person s insurance contracts, other than life insurance contracts (subrogation in life insurance is null and void Article 161 Insurance Act), provided that the insurer and the policyholder (in an express or implied way) intended to give it an indemnity character (Article 103 Insurance Act). Existence of a prior debt In accordance with article 1235 of the Belgian Civil Code, any payment requires a debt. Subrogation requires therefore a debt between the subrogating creditor (the insurer) and the debtor (the liable third party). Particular requirements provided for by the insurance laws Subrogation only applies within the limits of the paid indemnity to the insured; The insurer must be subrogated in rights or actions of the insured or the beneficiary; and The subrogation action can be only exercised against the third party responsible for the damage. 4. To which types of insurance do the rights of recovery apply? The legal subrogation action applies to the insurances with an indemnity character, namely those for which the insurer undertakes to provide the necessary performance in order to indemnify all or part of the loss incurred by the insured, or for which this last is responsible (Article 55, 3 Insurance Act). As a consequence, the subrogation action applies to property insurance, liability insurances, expenses insurance (for example, legal expense insurance). The subrogation action also applies to a person s insurance contracts other than life insurance, provided that the parties (explicitly or implicitly) intended to give them an indemnity character (Article 103 Insurance Act). 13

3 5. Against whom can the rights of recovery be exercised? In accordance with article 95 of the Insurance Act, the subrogation action can be exercised only against the third party responsible for the damage. It may also be exercised against the liability insurer of the responsible party as Belgian insurance law knows the concept of a direct action against liability insurers (Article 150 Insurance Act). The subrogation action cannot be therefore exercised against the insured. Such action is however possible under Belgian law, but it is the so-called recourse action. This is the right of the insurer, who has been legally obliged to indemnify a victim, but who has legal grounds to recover the indemnification of its insured, because of a contract breach by the insured (for instance: a drunk driver). Such recourse action is however loss from a recovery action against a responsible third party. 6. Where an insurer pursues a claim or right against a third party using its rights of recovery, does this alter the rights or defences of the third party? If so how? In particular: 6.1. Are there any additional defences that the third party can raise against a claim brought by an insurer using its rights of recovery, which could not have been raised if the claim had been brought by the insured directly? There are no such defences. In a (rather surprising) judgment of 31 October 1991, the Belgian Supreme Court ruled that the insurer is subrogated in the rights of the insured when it has indemnified the injured person, whether or not it was obliged to do so. In this particular case, the insurer had indemnified the victim of a car accident and intended a subrogation claim against the driver of the car to whom the insured had entrusted their car. The driver was drunk, which was excluded by the insurance policy. In principle, there was no obligation for the insurer to indemnify the victim. According to the Supreme Court, the insurer had been subrogated by the indemnification of the victim, regardless of whether he was obliged to indemnify or not. This judgment has been severely criticised by legal authors but there has been no new relevant case law available on this issue since then Are there any defences that the third party cannot raise against a claim brought by an insurer using its rights of recovery, which could have been raised if the claim had been brought by the insured directly? According to the transfer effect of the subrogation (that is, all the insured s rights and actions are transferred to the insurer), the situation of the third party cannot be aggravated by the subrogation. Therefore the defences that the third party could invoke against the subrogating debtor (the insured) can also be raised against the subrogated insurer, as far as they have their origin prior to the indemnification of the insured by the insurer. 7. Does the insurer pursue the rights of recovery in its own name, in the name of the insured, or both? On the basis of the case law of the Belgian Supreme Court ( the Court of Cassation ), the insurer does not exercise its own rights but the insured s rights. In this context, the insurer pursues the right of recovery in the insured s name. In practice, when an insurer pursues a right of recovery via court proceedings, the insurer will make use of the name of the insured only in order to avoid procedural discussions and evidence requirements with respect to the rights of subrogation. Belgian law recognises the fact that the insurer can do so on the basis of the concept of a silent name lending, which is considered to be a part of any insurance contract. 14

4 8. Where an insurer pursues rights of recovery in the insured s name: 8.1. Who has control of the claim; and Once the indemnification is received, the disinterested insured cannot claim any rights against the third party. Any disposal of the debt (for example, liability waiver or settlement) that would occur after the subrogation would be unenforceable against the subrogated insurer. This means that by way of the subrogation, the insured loses any control of the claim and the insurer will have full control of the claim which includes taking the decision to pursue it in court or arbitration proceedings and the decision to enter into a settlement with the third party Are there any procedural requirements (for example, court filings or execution of specific documents) that the insurer and/or insured must comply with if so what are they? There are no specific procedural requirements, but the insurer in practice will have the insured sign a subrogation deed that confirms that the insurer has made an indemnification of a particular amount of money under the insurance policy; and the statement by the insured that up to this paid amount, the insurer is subrogated in all their rights and claims against third parties. This subrogation deed will be used as an exhibit by the insurer if it pursues its right of recovery in the court or arbitration proceedings in its own name. 9. When exercising rights of recovery, does an insurer owe any obligations to the insured? If so, what are they? Neither the Insurance Act, nor case law or legal doctrine provide for such obligations. 10. Does an insured have any duties towards its insurer requiring it to preserve or not prejudice the insurer s rights of recovery. If so, what are they? Article 95 of the Insurance Act provides a general provision which states that when by the fact of the insured or the beneficiary the subrogation cannot produce its effects in favour of the insurer, this latter can claim the restitution of the indemnity paid to the extent of the suffered loss. This includes for example the hypothesis that the insured would have entered into a favourable settlement with the third party, not informing its insurer. 11. Where an insured has suffered a loss that is only partially insured: Does the insurer still have a right of recovery and if so to what extent; and According to article 95 of the Insurance Act: the insurer which paid the indemnity is subrogated for the amount thereof in the rights and actions of the insured or the beneficiary against third parties responsible for the damage. The insurer cannot claim a higher amount than the insured could have claimed from the third party. In case of partial insurance, the recovery proceeds will first have to be used to pay to the insured the part that has not been compensated by the insurer (such as a deductible, the amounts of loss above the insured limit, excluded losses or expenses) If the proceeds of any recovery action brought on behalf of both the insurer and insured are insufficient to reimburse both the insurer and the insured in full, how are the proceeds distributed? The recovery proceeds will first be used to compensate the insured for their full loss, to the extent he has not received compensation from their subrogating insurer. This includes amounts of deductible, amounts above the insured limit, excluded losses or expenses. Any balance that will be left will then go to the insurer (Article 95 Insurance Act). 12. Can insurers and insureds agree that the insurer will have no rights of recovery? If so: In what circumstances might they do this; and 15

5 Such clauses are prohibited when aiming at enabling the insured to benefit from accumulated indemnities that are higher than their own loss. This would indeed lead to a situation in which an insured could profit from an insurance contract. The Insurance Act gives an example of one of the circumstances where the ruling out of the subrogation is permitted. According to Article 95 of the Insurance Act: Except in cases of malice, the insurer has no recourse against the descendants, ascendants, the spouse and lineal allies of the insured or against the people of his household, guests and members of his domestic staff. The legal doctrine considers that the subrogation ruling out clause can be extended to others persons than the ones mentioned in the article 95. In practice, ruling out of subrogation is also stipulated as regard visitors, suppliers, providers. However, in case of dispute, subrogation ruling out clauses will be strictly interpreted by the courts in a narrow fashion Where would evidence of such agreement be found (for example, in the insurance policy or in separate contracts)? The evidence usually can be found in the insurance contract itself, or in an addendum to it. It is uncommon to provide such clause in a side-letter. 13. Can an insurer s rights of recovery be invalidated or restricted in any other way? If so, please describe how. Except from what was mentioned in question 12.1, the subrogation cannot be restricted nor invalidated. 14. Please specify any important issues regarding rights of recovery in your jurisdiction, which are not covered by these questions. The case law and legal doctrine are divided on the definition of malicious intent, which, according to Article 95 paragraph 4 of the Insurance Act, allows the insurer to exercise its subrogation action in all cases. In accordance with the explanatory memorandum of the Insurance Act, the malicious intent refers to an intention to harm the insured, although a part of the legal doctrine regards it as wilful misconduct. The statutory regime for transport and marine insurance is set out by Article 246 of the Insurance Act. This article provides that the insurer which paid the damage is subrogated to all insured s rights against the third party for such damage. The scope of this provision is therefore broader than what is provided regarding the other insurance contracts, which limits the subrogation recovery action against the responsible of the damage. Therefore, contrary to the general provisions regarding other insurance contracts, it is not prohibited for the marine or transport insurer to bring an action against the relatives in direct ascending or descending line, spouse and direct in-laws of the insured, or against his residents, his guests and domestic staff, unless this was excluded for in the policy terms and condition. 16