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8/2 W01/March 2017 Award in General Insurance

Introduction

There are some situations where a policyholder may have in place more than one policy covering a
particular loss or liability. Circumstances may also arise where a policyholder has insured a risk but
when the loss happens it is caused by the actions of someone else. Consequently, not only is the
policyholder protected by the insurance, they also have the potential to recover damages from the third
party. In the first case, we need to look at the rules that apply where there is some kind of dual
insurance (the principle of contribution); in the second, we need to see how the policyholder’s rights of
recovery are passed on to the insurer (the principle of subrogation).
Underlying both these principles is the principle of indemnity, which, as we saw in chapter 7, relates to
exact financial compensation. This means that a policyholder is not entitled to profit from a claim
settlement.
We will look at the principles of contribution and subrogation separately.

Key terms
This chapter introduces the following terms and concepts:

Benefit policies Common insurable interest Contract Contribution condition
Non-contribution clauses Precluded subrogation Rateable proportion Statute
rights
Subject-matter Subrogation waiver Tort

A Contribution

When we examined the principle of indemnity, we said that when settling a loss, the intention was to
place a policyholder in the same financial position they enjoyed immediately before the loss. We also
said that they cannot recover more than the financial loss suffered. Reference copy for CII Face to Face Training

A policyholder can take out as many insurance policies as they wish, provided that there is no fraudulent
What happens when
there is double intent. But what happens when there is double insurance with more than one valid policy of indemnity in
insurance? force? Can someone claim under both policies and receive more than they actually lost?
From our study of the principle of indemnity, we know that a policyholder should not be able to recover,
in total, more than the amount lost by claiming under both policies. They can only recover the total
amount of a loss, regardless of the number of policies held.
Let us consider someone who does hold two policies. If they make a claim on only one of them and
receive indemnity from it, the other insurer has avoided its financial responsibility; the insurer that paid
the claim has taken full financial responsibility. It is this possibility that gives rise to the principle of
contribution, which seeks to share the burden of loss fairly amongst all the insurers who have covered it.
8 Double (or dual) insurance
Chapter There are many situations where double insurance exists.

Examples include:

• an ‘all risks’ policy and travel insurance policy both covering travel and possibly the same property
while overseas;
• a specific warehouse stock policy and a ‘floating’ policy covering stock over several warehouses –
both covering the same stock;
• a household contents policy and the personal effects section of a motor policy – both covering
personal effects while in a motor vehicle; and
• a homeowner taking out a household buildings policy and not remembering that they had agreed with
the mortgage lender to take out a policy with another insurer.

A1 Contribution condition

Contribution is defined as the right of an insurer to call upon others similarly, but not necessarily
equally, liable to the same insured to share the cost of an indemnity payment.