Double insurance arises where the same party is insured with two or more insurers in respect of the same interest on the same subject matter against the same risk and for the same period of time. Whether or not the above conditions are satisfied will be a matter of construction of the policies’ wordings. The general rule is that in the event of double insurance, if a loss is caused by the risk insured against, subject to the terms of each insurance policy, the insured may recover the full amount of his loss from whichever insurer or insurers he chooses. Upon such indemnity being paid from one insurer to the insured, that insurer becomes entitled to claim contribution from the co-insurer. In practice, the right to a contribution between insurers can be varied or excluded by the terms of each policy or by agreement between the insurers. In the absence of the latter, the issue will most commonly be a matter of construction of the clauses contained within each policy document, which would often aim to pre-empt contribution claims. The most common double insurance clauses include one or a combination of the following:
Key principles of contributionSome difficulty with the above provisions often arises where the wordings of two or more policies are in competition with each other. The following key principles have been established in this respect:
A further difficulty arises in situations where there is a combination of different clauses – for example an “excess” clause in the first insurance and a “rateable proportion” clause in the second. The way in which this situation is to be interpreted has been illustrated in the case of National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm). The case concerned a dispute between two insurers over insurance in relation to damage caused by fire to a property which was subject to a sale contract. The fire occurred 17 days after the exchange of the sale contracts but before completion of the sale. At the time, the property was the subject matter of buildings insurances taken out independently by the seller and the buyer. The seller had insured the property with HSBC. The buyer had insured the property with the NFU. The HSBC policy contained an “excess” clause providing that HSBC would not pay any claim if any loss, damage or liability was covered under another insurance policy, “except in respect of any excess beyond the amount which would have been covered under such other policy had this insurance not been effected”. The NFU policy contained a “rateable proportion” clause providing that in case of “other insurance” covering the same accident, illness, damage or liability, they would only pay their share. Upon review of the respective policy wordings, the judge held that the HSBC policy operated only as an excess policy to the NFU policy. Since the NFU policy provided cover for the same risk, the excess clause was triggered and the HSBC policy did not cover the buyer. Accordingly there was no “other insurance” within the scope of the NFU rateable proportion clause and the NFU was liable for the loss in full. This decision confirms the importance insurers understanding the implications of their policy clauses. Determining whether or not there is double insurance, and if so, how much is each insurer liable for, will largely depend on interpreting the policy wording in any particular circumstances. [1] The Australian Agricultural Company v Saunders (1874-75) L.R. 10 C.P. 668 [2] Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409 [3] National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd[2010] EWHC 773 (Comm) [4] Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409 |