dealing with subrogation

[peeta]

Hi all,

Hope all is well.

bit of a context first/

I run a small business and I had a contract with customer X. Customer X was insured with RSA and RSA after paying out customer X, trying to claim the money from me.

But the contract I had with customer X is not frustrated as we had given part of the contract and offered options to delivered the rest and still remain committed to honour the contract. But, customer X has got the money from insurers and insurers are asking us for the money citiing subrogation.

this does not sound fair? and just wanted to know if anyone else come across this and/or how to deal with it.

since RSA has instructed solicitors now I believe this is going to come to small claims court...but how do we know if this subrogation is a clause in the Insurance policy or does all insurance policies has this subroration clause within them by default?

Thanks

[atticus]

Fair or not, if X has a claim against you in respect of which X has been paid by insurers, then under principles of subrogation, X's insurer is entitled to pursue X's claim in X's name.

Subrogation is a general principle of law. Most insurance policies will contain a clause reinforcing this, in part to require the insured to cooperate, provide evidence etc.

[des8]

All insurance companies have subrogation rights
This is the e the legal right to recover its loss from a third party.
It is generally initiated when insurers pay a policyholder's claimk, where the loss was acactually caused by a third party
The insurer has the right to subrogate directly against the third party or their insurance company.

Do you carry your own insurance that might deal with this claim?

If the matter is allocated by the courts to the small claims track, costs which can be claimed by the winning party are very limited,.
So if you believe you have a valid defence don't be bullied by the insure's solicitors who may threaten you with huge costs in an attempt to have you cave in before a court hearing

[peeta]

Thanks both. So, we do not have any insurance. But the irony is we might well as get a business insurance from the very company that is threatening legal action.

But, the issue here is Customer X do not have a claim..To give more context, we are a wedding supplier and once the customer X's wedding was postponed due to pandemic, we offered change of dates which customer X did not accept...This is not deemed as 'frustration of contact' right?

Further by that time, we had offered part of the contract, so customer X is not eligible for full refund anyway...

So, how do we go about this pls? Should we ask for a copy of the insurance polocy customer X had with their insurer? (note Customer X is not in the picture these days, just the insurance company)

should we ask for any consent that customer X has given insurer to pursue?

thanks

[atticus]

By all means ask those questions and request that information.

[Manxman]

When you say "wedding supplier", what exactly do you mean? Are you a venue* for weddings or something?

If the wedding (or whatever) could not go ahead, then I would have thought that the contract was frustrated and your customers are entitled to a refund. You may have been able to offer alternative dates, but I don't believe that your customers would be obliged to accept your suggested alternatives.

I think this sort of thing was covered by this guidance: Statement on coronavirus (COVID-19), consumer contracts, cancellation and refunds - GOV.UK (www.gov.uk)

When you say that you had "offered part of the contract", do you mean that you had delivered part of the contract? If so, the guidance seems to say that you are entitled to retain such payment as relates to that part of the contract that you fulfilled. But you can't expect your customer to pay for goods or services you didn't, or couldn't, deliver.

But I'm not a lawyer, so depending on how much money you are talking about you might want to ask a solicitor. As a business, do you have one?

I'm pretty certain that the insurer does not require any authorisation from your customer in order to sue you. (I also suspect that the insurer would not have paid out to their insured if they were not reasonably confident of recovering from you.)

You really ought to have business insurance to cover precisely this eventuality.

*If you're providing goods (eg dresses and suits) rather than a service (eg a wedding venue) the situation might be different if you fulfilled your part of the contract by delivering the goods. But as you talk about offering alternative dates, I assume you are providing a service and not goods.

[peeta]

thanks Manxman , We are wedding photography company. so this client had a contract to cover wedding and reception. We covered wedding and not reception because they postponed the reception.

When it was due to happen, the number of guests who could attend was restricted (but reception could have still taken place, albeit reduced numbers), client postponed again...so we kept them on our books incurring admin and planning costs.

We can still offer them alternate dates / coupon etc..but not full refund as they claim due to above.

so the question, if there is a contract, can one party simply walkaway when they had all the means to honour it?

also in our case above, is the contract set to have been frustrated?

[atticus]

The contract cannot have been frustrated: you performed part of it.

It seems that you may have a defence. But at the moment you are giving the story in small parts. We have a number of pieces of the jigsaw, but cannot yet make out a clear picture.

What has been the difficulty about photographing the reception? Has anyone actually cancelled that part of things? If so, who and why?

[peeta]

it was because of Covid, so customer postponed - then venue went into liquidation..customer again said they would still have as photographer when the reception eventually happens, so we kept them on our books..then they said they want to cancel altogether...

[atticus]

But they cannot cancel altogether: you have photographed the wedding.

So the question is whether your customer is entitled to a partial refund.

Having identified that question, can we have the full facts please. In particular, have you been paid in full? What contract terms are in place*? How much money are we talking about?


*leaving tell later any consideration whether those terms are valid or enforceable.

[Manxman]

What does the amount of money the insurers are suing you for represent? Is it only a deposit which represents a part payment of the total contract value, or did your clients pay you 100% of the total contract value in advance?

You can't be sued for that part of the contract which you did deliver - ie the wedding photography*. So if, for example, your clients paid 100% of the total value in advance, you can't be sued for that part of the agreed price that included the wedding photos, because you've already provided* that service.

If they paid you in full in advance (for both the wedding and reception photography), whether or not you can be sued in respect of the value relating to the reception photography depends on what the terms of your contract say about the client cancelling the contract. If I understand correctly what you've told us, it was the client who decided to cancel the reception, not you, and it wasn't because of Covid that it didn't go ahead. So what does your contract say about the client cancelling any part of the contract?

Have you made the insurers suing you aware that it was your client - not you - who cancelled the wedding reception, and therefore it was their insured who cancelled that part of the contract - not you?

It's possible that the wedding insurance does give a payout to the policy holder in the event that the policy holder cancels some part of the wedding, but that gives no justification for the insurers to recover their payout from you.

(I do wonder whether your clients may not have been entirely open with their insurers as to the circumstances leading up to cancellation. If the facts are as you have described them, I'm not sure why you are being sued)


*I assume you have provided your former clients with the photographs you took at the wedding ceremony?

[atticus]

I think Manxman has just hit a few nails on the head.

[peeta]

Guys, below are the full facts in chronological order.

1) July 2019: Customer places an order for £12000 for wedding and reception to take place in April 2020.
2) As per our policy transfer 75% of the money in advance which is £9000. Importantly no contracts were signed which was an oversight as we normally have service contracts. At that time, email exchanges has taken place with quotes, etc.
3) Preshoot takes place which is part of the contract/quote photos are given to the client in (Dec 2019)
3) By March 2020, they postpone their April 2020 Wedding and Reception to November 2020 due to Covid.
4) In November, they again postpone the wedding to May 2021 due to restrictions in place in Nov 2020
5) by April 2021, they say their venue gone bust, so they want to cancel - we tell them no refund be given, but vouchers and postpone is possible due to we had exclusively reserved the dates for them throughout and postponed multiple times incurring planning and admin costs.
6) July 2021: Cusotmer accepts our offer, and decide to postpone the event to later that year and still have our services.
7) October 2021: Decides to cancel the order unilaterally.
8) Cusotmer's insurers makes us offer to us asking as to pay customer £5000 and they will underwrite the rest £4000.
9) We refuse saying, we are sill committed to honour contract and part of it already delivered and other options available.
10) Insurers might have paid the customer and now looking to get the money from us.- We do not know how much they paid customer, but they are asking us to pay £9000.

So, what should our response be to them now?

Thanks in advance.

[Manxman]

Sorry - are you saying your fee for doing the photography at the wedding and the reception was £12000? (I wasn't expecting it to be that much!)

So you took 75% of the fee in advance, but you never had a written contract in place. What would the written contract you would normally have used have said about the client's right to cancel the contract? Does none of your quotes nor any of your emails cover the situation where the client cancels?

If I were your client and you were asking for an advance payment of £9000 from me, the first question I'd ask would be "What happens to the £9000 if we have to cancel?". Was that not discussed at all? (Don't forget, something doesn't have to be in writing and signed if there is evidence it's been agreed to)

You said in #7 that the wedding had taken place and that you had taken photos of it, but all you say in #13 is that a "preshoot" had taken place. So did you photograph the wedding or not?

As discussed in earlier posts, you shouldn't have to refund or pay to the insurance company any amount that relates to work you've actually done. But it's not clear to me how much of the £9000 you were paid relates to work you've done.

Regarding the rest of the £9000, I think that what would normally happen to that would depend on what your contract said.

On the one hand (a) if there really wasn't anything agreed about the client's right to cancel, and (b) you had turned down other work to fit in with the client's rescheduling of dates, and (c) they'd ostensibly accepted your offer to proepvide your services later in the year, then perhaps you should be entitled to keep the full £9000.

On the other hand (a) I find it a bit difficult to believe that cancellation was never discussed beforehand with the client and some sort of terms agreed, and (b) £9000 seems a lot to allow you to retain if you don't deliver all the services, and (c) it might be unfortunate that you turned down the insurance company's offer, and (d) I'm a bit surprised the insurance company would bother to sue you unless they thought they had a reasonable case. (Or perhaps they think it's a worthwhile risk to take for £9000?)

Have you explained to the insurance company that it was their client - not you - who cancelled?

For £9k you might want to consider seeking paid for legal advice.

[peeta]

Hi Manxman ,

Thanks for the reply.

Pre-pandemic cancellations are very rare, so they are not even discussed.
We only did a preshoot, so wedding itself has not taken place.
Our normal cancellation clause is no refund, but vouchers for any other event in the next 3 years.

The other factor is the original venue going into administration - does it help/hinder our case in anyway?

I think the insurers, paid out without facts..

now, is there any letter templates to reply to the insurer's lawyers demanding payment from us?