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8/6 W01/March 2017 Award in General Insurance

B2 Modifications to the principle

There are some situations in which the principle of contribution is modified.

B2A Non-contribution clauses

Certain policies have what is known as a non-contribution clause. This may be worded as follows:
This policy shall not apply in respect of any claim where the insured is entitled to indemnity under any other
insurance.
This means that the policy would not contribute if there was another insurance policy in force. The courts
do not favour these clauses, and in situations where a similar clause applies to both (or all) policies,
they are treated as cancelling each other out. This means that each insurer would contribute its rateable
proportion.
B2B More specific insurance clauses

Certain policies include a clause which restricts cover in situations where a more specific insurance has
been arranged. The most common example of cover being restricted in this way is in a household policy.
It does this because many householders arrange specific insurance for jewellery and other items, and it
is not the intention for both policies to contribute.

C Subrogation

We can summarise subrogation as:
The right of an insurer, following payment of a claim, to take over the policyholder’s rights to recover payment
from a third party responsible for the loss. It is limited to the amount paid out under the policy.

Subrogation is a common law right. Any means of reducing the size of the loss by exercising recovery
Subrogation is a
common law right rights are for the insurer’s benefit, up to the amount that the insurer has paid out. The policyholder
cannot claim an indemnity payment from an insurer and then also acquire a further payment from a Reference copy for CII Face to Face Training
negligent third party. This would result in a profit to the policyholder and would breach the principle of
indemnity.
However, the requirement that the insurer must already have indemnified the policyholder before
pursuing subrogation rights, gives rise to some problems. This is because the insurers would not have
had complete control of proceedings from the date of the loss. Its eventual position could be severely
prejudiced by delay or by some other action taken by the policyholder.
In order to gain this control, insurers invariably include a condition in the policy which gives them the
power to pursue subrogation rights before the claim is paid. The only limitation is that the insurer cannot
recover from a third party before it has actually settled its own claim.

8 Question 8.3
Chapter While your car is parked, another motorist collides with it, causing damage. You claim under your own motor

insurance policy and also contact the other motorist’s insurance company to claim damages.
You receive two payments in settlement; one from each of the insurers.
Are you entitled to keep both payments?
Give your reasons.

You will remember that the concept of indemnity is to place the policyholder in the financial position
they were in immediately before the loss. In this case, your own motor insurer has already fulfilled this
obligation; your insurer is therefore entitled to any money received from third parties in respect of the
loss that it has already paid.

C1 Definition of subrogation

Subrogation is defined as follows:
The right of one person, having indemnified another under a legal obligation to do so, to stand in the place of
that other and avail himself of all the rights and remedies of that other, whether already enforced or not.