In June 2025, the Western Cape Court handed down a judgment on subrogation that changes established legal principles and settled practice. The Court held that an insurer exercising its subrogation rights must specifically disclose and plead subrogation and be cited as a party to any civil proceedings. If left unchallenged, the judgment will have far-reaching consequences for the insurance industry, insurers will be required to plead and prove both subrogation and legal standing when enforcing their subrogated rights.

It is well-established in law that an insurer who has fully indemnified an insured is entitled to pursue the insured's cause of action where the insurer has fully indemnified the insured and is seeking to enforce a recovery action against a third-party wrongdoer. This entitlement arises in respect of all rights and remedies vested in the insured in relation to the subject matter of the insurance.

Subrogation functions as a procedural mechanism supporting the principle of indemnity by enabling the insurer in relation to the insured, to assume control of proceedings against third parties responsible for the insured’s loss. These proceedings are typically brought in the name of the insured, and the insurer effectively steps into the shoes of the insured and directs the litigation. The effect is that there is only one claimant, one cause of action and one loss.

Subrogation applies automatically under common law or contractually through the insurance policy, a loss agreement or a written subrogation agreement.

In Le Bonheur Wine Estate (Pty) Ltd v Stellenbosch Vineyards (Pty) Ltd, the Western Cape High Court was called on to resolve a dispute involving subrogation in the context of indemnity insurance litigation. The case arose after a fire at the defendant’s premises destroyed wine inventory belonging to Le Bonheur, which was being stored under a warehousing agreement. Le Bonheur was fully indemnified for its loss by its insurer, who then instituted legal proceedings in Le Bonheur’s name to recover the indemnified amount from Stellenbosch Vineyards.

Shortly before the trial, Stellenbosch Vineyards and Le Bonheur became sister companies and resolved to withdraw the main action, appointing new attorneys to do so. This triggered a dispute between the insurer and Le Bonheur over who had authority to control the litigation.

The central legal issue was whether the insurer, by virtue of subrogation, had the right to control the litigation in the name of the insured, including the appointment and dismissal of attorneys, without disclosing or pleading subrogation. The insurer argued that subrogation transferred both substantive and procedural rights from Le Bonheur to itself, entitling it to continue the litigation and oppose the substitution of attorneys. The Court, however, rejected this argument.

The Court held that subrogation does not transfer procedural rights and that the insurer, not being cited as a party in the pleadings, lacked standing to control the litigation. As the named plaintiff, Le Bonheur retained the right to appoint and dismiss attorneys and to decide whether to proceed with or withdraw the action.

Focusing on the Uniform Rules of Court, the Court further held that the substitution of attorneys by Le Bonheur was valid and legally effective. The Court found that the insurer's attempt to set outside the substitution under Rule 30 was procedurally flawed, as the rule applies only to irregular steps in form, not substantive disputes over authority.

Recognising the potential prejudice to the insurer if the action were withdrawn, the Court sought to extract itself by relying on the exercise of what it claimed to be its inherent jurisdiction to join the insurer as a co-plaintiff. This would purportedly allow the insurer to amend the pleadings to reflect its subrogated interest and to continue the litigation in its own name, thereby preserving its right of access to the courts under section 34 of the Constitution.

However, this approach effectively deprives non-life insurers of their right of access to the courts in existing matters, particularly where claims have now prescribed. The judgment therefore has far-reaching implications for recovery proceedings initiated by insurers post-full indemnification.

Although the Court acknowledged the long-standing practice of subrogation and the Supreme Court of Appeal's historical refusal to abolish such principles by judicial fiat (see, for example, Rand Mutual Assurance Co Ltd v Road Accident Fund 2008 (6) SA 511 (SCA)), the court criticised the insurer's failure to disclose subrogation and stated that an insurer cannot litigate anonymously.  The reality is that, in this case, the parties clearly knew that the action was subrogated and who the insurer was. It is artificial to suggest otherwise.

The Court’s interpretation of subrogation misunderstands its legal foundation and the functional realities of insurance litigation. By rigidly separating substantive and procedural rights, the Court denies insurers the practical ability to control litigation conducted in the name of the insured, even when the insurer has fully indemnified the loss and is funding the litigation. This undermines the very purpose of subrogation, which is to allow insurers to recover fully indemnified losses from third-party wrongdoers.

The Court also failed to consider the express contractual rights of the insurer and obligations of the insured under the policy. In this case, the policy stated that the insured shall: "at the expense of the insurer, do and permit to be done all such things as may be necessary or reasonably required by the insurer for the purpose of enforcing any rights to which the insurer shall be or would become subrogated upon indemnification of the insured, whether such things shall be required before or after such indemnification."  This is a contractual right that insurers are entitled to exercise under South African insurance law. Subrogation has long been understood to entitle the insurer the right to pursue recovery either in its own name or in the name of the insured. Denying the insurer procedural control while allowing it to sue in the insured’s name creates a paradox that is both legally flawed and commercially impractical.

The judgment also imposes a procedural burden on insurers by requiring them to be formally joined as parties in order to control litigation. This will likely hinder the efficient recovery of indemnified losses and complicate what is otherwise a well-established and a functional legal mechanism.

The result is a judgment that misconstrues subrogation by stripping insurers of the procedural tools necessary to enforce their common law and contractual rights effectively. Its commercial and legal implications are significant and, in our view, call for appellate court clarification to ensure that subrogation remains a viable and efficient recovery mechanism in the South African legal landscape.

Written by Sandra Sithole, Partner, Rethabile Shabalala, Senior Associate & Laken-Lee Abrahams, Candidate Attorney from Webber Wentzel