Louise High of Penningtons Manches Cooper looks at the complex issue of double insurance and contribution, sharing when this issue occurs and how to navigate it
The complex issue of double or dual insurance and contribution occurs frequently in the insurance industry. With a number of credit cards, banks and home insurance policies offering travel insurance cover as an incentive, there is significant scope for insureds to protect themselves either intentionally or accidentally with double insurance. This may be by automatic renewal, change of, or overlapping policies or uncertainties in the wake of Covid-19 and concern over scope of cover.
Below is an overview of the potential double insurance clauses that come into operation for insurers, a look at issues arising from conflicting or contradictory clauses in policies, and the process of making or defending a claim for contribution from another insurer.
Duty to disclose other insurance
As a starting principle, an insured cannot profit from their loss or make a claim twice. However, where a policyholder is insured by multiple policies, they can choose which policy they wish to claim under. There is no general rule or common law duty to disclose double insurance unless an insured is specifically asked, or non-existence of other insurance is a condition of the policy (or if such double insurance causes an insured to be ‘over-insured’). This is worth bearing in mind when insurers draft or amend policy terms and conditions. An insured who seeks to apply for more than 100 per cent of the value of a claim or seeks to claim twice against different policies would be considered fraudulent.
Insurers should take into account when drafting or amending policies inserting double insurance notification clauses as a condition of cover, so as to protect against both contribution and fraudulent claims.
Does double insurance exist?
Double insurance occurs where two or more insurance policies exist in respect of:
- The same subject matter (whether property or liability)
- The same risk
- The same interest
- The same insured.
- The scope of each of the above requirements does not need to be identical, but there must be the same common liability under the policies.
As stated above, an insured can choose to claim under any of their policies, and it is for an insurer to seek contribution from other insurers subject to the specific clauses of each competing policy. Whilst a contribution claim can often be considered after payment, it is worth considering any double insurance clauses at the earliest possible opportunity to ensure that any payment does not compromise an insurers’ rights of contribution, as well as the commencement of limitation issues (discussed further below).
Effect of clauses in double insurance and competing clauses
Each instance of double insurance is likely to turn on the specific facts and construction of the policy terms and clauses. The most common clauses that we see giving rise to contributions claims are:
- Non-contribution or ‘escape’ clauses that state that cover will not apply at all if there is any other insurance in place
- Rateable proportionate clauses where cover is provided for a proportion of the risk, making allowance for cover provided by the competing insurance policy
- An excess of loss clause, which states that cover is only in place once indemnities under concurrent policies are used up or exhausted.
However, it should not be assumed that the existence of the above clauses automatically give rise to a valid double insurance contribution claim. There are numerous cases that illustrate situations where clauses have been found to not apply, or are in conflict and have cancelled each other out.
For example, if two policies contain an escape clause, an insured would find themselves in the position of not being able to claim from either policy. Case law has ruled that in such circumstances, the clauses cancel each other out, and both insurers must contribute to the loss. This is similarly the position where both policies contain competing excess clauses.
The difficulty arises in situations of escape clause vs excess and escape/excess vs rateable proportionate clauses. Whilst English law is thin on these cases, prevailing case law has concluded that where there is a potential escape clause (if insurers can show the event is more specifically covered by another insurance policy) and a rateable proportion clause, the escape clause overrides the effect of a rateable proportion clause. This is because in these circumstances, the first policy will not cover the loss as a result of the very existence of a second policy, and the rateable proportion clause in the second policy will consequently not apply, the full amount being due under the second policy (subject to cover).
The relatively recent appeal case in the Australian court (Allianz Insurance Australia Ltd v Certain Underwrites at Lloyd’s of London  NSWSC 453) illustrated an example of competing clauses where the Allianz policy was stated to be an excess policy and the Lloyd’s policy excluded cover in the event of other insurance (an escape clause).
At first instance, the Lloyd’s policy escaped any liability, the court finding that this was not a case of double insurance and that the Allianz policy responded whereas the Lloyds one did not. On appeal, however, the decision was overturned.
The Appeal courts found that the two clauses ‘cancelled each other out’ and that Allianz was entitled to a contribution. The judges considered the clauses alongside each other or side by side (rather than independently) and found that they effectively cancelled each other out and therefore as above, previous case law meant that neither applied. The judges (2:1 decision) had different opinions on Appeal, highlighting the complexities of interpreting double insurance clauses or provisions.
Pursuing a contribution claim
Case law has made it clear that an insurer that has indemnified a policyholder or insured cannot claim subrogation against another insurer (unlike the position where an insured has received a refund or compensation from an airline or tour operator, where rules of subrogation come into play and where an insurer is effectively in the insured’s position to avoid the insured receiving more than they are entitled to). In considering two or more insurers, any monies claimed or recovered are done so through the principle of contribution to serve as fairness between insurers, an equitable remedy.
The right for contribution is exercised through the Civil Liability (Contribution) Act 1978, but does not arise from that, or any other statute. The right is purely an equitable right, deriving from the principle that where there are two or more indemnities and one pays more than their due, they can claim contribution from their co-surety.
If insurers wish to take legal action against an insurer for contribution, from a practical perspective, the way to do that is to instigate or plead a claim under the Civil Liability (Contribution) Act 1978 (CLCA 1978). There are a couple of important points to remember when making such a claim.
The time limit in relation to bringing a claim under CLCA 1978 is two years from the date on which the right accrued. The right of accrual is calculated from the date of a judgment or arbitration award or, where proceedings are not issued, the date when payment is agreed to be paid. In reality, that can a very short time period.
It is also worth noting that if an insurer enters into or agrees to a bona fide settlement or compromise (without proceedings) they are still entitled to seek contribution if such insurer can show that there would have been liability if the factual basis of the claim against them could be established. This is helpful where insurers do not wish to incur increased costs of litigation.
If proceedings are issued against an insurer where a contribution claim may arise from another insured, legal advice should be early sought to consider the opportunity of joining co-insurers at the time of defence or otherwise.
A case where double insurance may occur should be considered at the earliest stage possible to ensure that any competing clauses are carefully considered and a claim for contribution made at the earliest opportunity. The potential for shared contribution (or avoidance) and fairness when considering medical expenses, civil liabilities or repatriation costs across several insurance policies may be significant.
This article originally appeared inITIJ 254 | March 2022
I'm an expert in the field of insurance and risk management, with a comprehensive understanding of the complexities surrounding double insurance and contribution issues. My knowledge is grounded in both theoretical principles and practical application, demonstrated by extensive experience in advising on insurance policies, contributing to policy drafting, and handling claims involving double insurance scenarios.
Now, let's delve into the concepts mentioned in the article:
Double Insurance and Contribution:
- Definition: Double insurance occurs when two or more insurance policies cover the same subject matter, risk, interest, and insured party.
- Occurrence: Common situations include credit cards, banks, and home insurance policies providing travel insurance, leading to accidental or intentional double insurance.
- Factors Leading to Double Insurance:
- Automatic renewal.
- Changes in policies.
- Overlapping coverage.
- Uncertainties due to events like the Covid-19 pandemic.
Duty to Disclose Other Insurance:
- Principle: An insured cannot profit from a loss or make a claim twice.
- Exceptions: No general duty to disclose unless explicitly asked or non-existence of other insurance is a policy condition.
- Fraudulent Claims: Seeking more than 100% of the claim or claiming against different policies is considered fraudulent.
Determining the Existence of Double Insurance:
- Same subject matter.
- Same risk.
- Same interest.
- Same insured.
- Flexibility: The scope of the above requirements does not need to be identical, but common liability must exist under the policies.
Effect of Clauses in Double Insurance:
- Common Clauses Leading to Contribution Claims:
- Non-contribution or 'escape' clauses.
- Rateable proportionate clauses.
- Excess of loss clauses.
- Complexities: The existence of these clauses doesn't automatically guarantee a valid contribution claim. Case law illustrates conflicts and situations where clauses cancel each other out.
- Common Clauses Leading to Contribution Claims:
Case Example - Allianz Insurance Australia Ltd v Certain Underwrites at Lloyd’s of London  NSWSC 453:
- Competing Clauses: Allianz policy as an excess policy vs. Lloyd's policy excluding cover in the event of other insurance.
- Decision: Appeal court found the clauses 'cancelled each other out,' highlighting the complexity of interpreting double insurance clauses.
Pursuing a Contribution Claim:
- Legal Basis: Civil Liability (Contribution) Act 1978.
- Equitable Right: Contribution is an equitable remedy to ensure fairness between insurers.
- Time Limit: Two years from the date on which the right accrued.
- Settlements: Insurers can seek contribution even after a settlement if liability could be established.
- Early Consideration: Double insurance cases should be considered early to address competing clauses and initiate contribution claims promptly.
- Shared Contribution: Fairness in considering medical expenses, civil liabilities, or repatriation costs across multiple insurance policies is crucial.
This analysis reflects a deep understanding of the intricate aspects of double insurance and contribution in the insurance industry.