Introduction
In its recent decision in ECGC Ltd v Invention India (Exports) Pvt Ltd [RFA (Comm) 256/2024 & CM Appl 38351/2024 – decided on 14 July 2025], the Delhi High Court reinforced fundamental principles of indemnity and subrogation in insurance law. The High Court held that an insurer is not liable under an export credit insurance policy where the insured unilaterally settles with the defaulting buyer, thereby extinguishing the insurer's subrogation rights. The Division Bench of the High Court set aside a Commercial Court's judgment which had decreed the insured's suit for recovery. The High Court judgment provides clarity on how policy exclusions and subrogation interact in the context of export credit insurance.
Background
ECGC Ltd (the Insurer) had issued a Buyer Exposure Policy (the Policy) to Invention India (Exports) Pvt Ltd (the Insured), covering shipments of garments to Morrison Super Markets PLC (Buyer) in the UK. The Buyer failed to pay for goods worth GBP 184,264.08, citing defects in the quality of products. The Insured submitted a Report of Default (RoD) on 30 November 2019 (15 days late as per Policy terms) and subsequently lodged a claim under the Policy with the Insurer.
Negotiations ensued between the Insured and Buyer and the Buyer made a counterclaim of GBP 1,51,963.74 on account of alleged losses suffered by it. Although the Insured kept the Insurer broadly informed of the ongoing negotiations, the Insured entered into a settlement with the Buyer, accepting GBP 92,317 in full and final settlement and releasing the Buyer from all future claims (Settlement Agreement). The Settlement Agreement stated that the amount of GBP 92,317 was in full and final settlement of the dues of the Buyer and the Insured released and forever discharged the Buyer of all and/or any actions, claims, rights, demands and set offs, which was done without intimation to the Insurer, likely in an attempt to minimise its losses.
The Insured submitted its claim which was repudiated by the Insurer invoking Clause 3(b) of the Policy exclusions, which barred claims where an "unresolved dispute" existed. The Insurer argued that since there was a counterclaim and a Settlement Agreement, this indicated the existence of an unresolved dispute between the Insured and Buyer. The Insurer also relied on the 15-day delay in submission of the RoD by the Insured.
The Insured challenged the repudiation on the basis that the Insurer was kept informed of the discussions with the Buyer which indicated that the goods were manufactured per the specifications and that the allegations raised by the Buyer were baseless. Moreover, the Insured argued that the delay was immaterial since the Insurer was contemporaneously aware of the default and no prejudice was caused to the Insurer as a result of the delay.
The Insured filed a recovery suit against the Insurer, which was decreed by the Commercial Court, leading to the present appeal by the Insurer.
Issue for Consideration
The central issue before the High Court was whether the Insurer remained liable under the Policy despite the Insured having entered into a unilateral settlement with the Buyer, thereby compromising the Insurer's subrogation rights.
Court's Findings
The High Court held that a conjoint reading of the Insured Perils clause and the exclusions makes it clear that the Insurer will only be liable if there is: (i) Protracted Default; (ii) Insolvency; or (iii) Contract repudiation by the Buyer. However, Exclusion Clause 3(b) allows the Insurer to exclude coverage where there is an "unresolved dispute" between the Insured and its buyer.
Existence of Dispute: From a review of the repeated communications from the Buyer regarding the defective goods and its counterclaim, the Court found that there clearly was a dispute in respect of the quality of goods supplied. Therefore, when the claim was repudiated, an "unresolved dispute" existed between the Insured and the Buyer. The Settlement Agreement also acknowledged that there existed a dispute between the Insured and the Buyer which was amicably resolved by them.
Insurer's right of subrogation and minimization of loss: The right of subrogation ensures that the insurer can seek recovery from the errant third party for the loss indemnified to the insured. The Supreme Court expounded on the principle of subrogation in the landmark case of Economic Transport Organization v Charan Spinning Mills (P) Ltd [(2010) 4 SCC 114], wherein the Court held that when the loss is caused by a third party's negligence then the insured will have the right to sue the third party and when the insured recovers the losses from the insurer, the right to sue is transferred to and vested in the insurer. Furthermore, in United India Insurance Co Ltd v Kantika Colour Lab [(2010) 6 SCC 449], the Supreme Court held that indemnity insurance policies only allow recovery of actual losses, whereby the insurer's right of subrogation is not independent and it flows through the Insured. The insurer can only sue in the insured's name and once the right to sue is extinguished by the insured itself, due to a settlement with the buyer, the insurer is left remediless.
Relying on these and other precedents and by referring to authoritative commentary (such as MacGillivray in Insurance Law Relating to All Risk other than Marine), the High Court reaffirmed that subrogation is intrinsic to indemnity-based insurance. It was held that in the present case, the Insured had entered into a settlement with the Buyer and released the Buyer from all claims, demands, and actions relating to the dispute before any payment was made by the Insurer. Consequently, the Insurer was barred from pursuing any recovery action against the Buyer.
The Court also discussed that had the Insured consulted/informed the Insurer before entering into the settlement and preserved the Insurer's rights in the Settlement Agreement, the Insured's claim may have still been covered under the Policy.
Loss Minimisation Argument: The Insured sought to argue that the settlement was a bona fide attempt to minimise the loss. The Court rejected the argument and emphasised that the meaning of "minimisation of loss" under the Policy cannot extend to acts that compromise or extinguish the insurer's rights under the subrogation. Therefore, the Insured's act of entering into the Settlement Agreement which precluded the Insurer from exercising subrogation rights against the Buyer was not considered as a loss mitigation measure taken by the Insured.
Balance Claim by the Insured: The Court opined that the claim made by the Insured for the difference between the value of goods supplied and the payment received under the Settlement Agreement could have been considered, provided the claim was recognised as a loss incurred by the Insured. Given that the settlement was full and final in respect of the Insured's claim against the Buyer and the Insured had released the Buyer from any further claim or liability, no further default existed under the Policy. Therefore, pursuant to the Settlement Agreement, the Buyer discharged its liability entirely, and nothing remained to be claimed from the Insurer, particularly since the Insured did not consult the Insurer regarding such claim settlement.
Procedural Delay: Although the RoD was submitted by the Insured after a delay of 15 days, the High Court did not treat this procedural lapse as material to the outcome, implicitly reasserting that coverage disputes must be resolved on substantive grounds and not technical lapses.
Therefore, the Court held that the Insured, by unilaterally executing the Settlement Agreement, extinguished the Insurer's subrogation rights. Resultantly if the Insurer was made liable to pay under the policy, it would be left remediless against the Buyer, which is against the settled law of the right of subrogation.
The judgment upholds that insurers may justifiably deny liability where insureds act unilaterally in a manner that prejudices subrogation rights. It also clarifies that since an insurer essentially "steps into the shoes" of the insured after the claim is paid, should the insured settle with a third party and release it from all claims, the insurer's commensurate right to pursue the claims from the third party also stands affected.
Going forward, this decision will likely influence how insureds negotiate settlements with third parties and how insurers draft policy exclusions. It underscores the importance of treating insurance as a true contract of indemnity, where the insured cannot recover more than once for the same loss, and the insurer's right to recover from third parties is preserved.
Conclusion
The Delhi High Court's decision in ECGC v Invention India serves as a cautionary tale for insureds, emphasising the importance of coordination with insurers in managing third-party claims. Insureds must approach commercial settlements with attention and legal awareness, ensuring that they do not inadvertently prejudice insurers' rights or forfeit legitimate insurance coverage. As for insurers, the decision is pivotal reinforcement of the principle that indemnity and subrogation go hand-in-hand and provides a strong foundation to push back on claims where insureds have acted unilaterally.
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