This article describes issues which may arise when there is double insurance
- One of the claims we previously handled was a RDC claim in which there were two insurances covering the same risk (the P&I Insurers covered ¼ RDC and the H&M Insurers covered 4/4 RDC i.e. there was double insurance in ¼ RDC). While generally, more can be better, it is not necessarily the case which the Insured realised in this instance. We are writing this paper to discuss on Double Insurance and the issues which may arise under various marine policies i.e. Cargo, H&M (property) and Liability (P&I).
- Double Insurance: The UK Marine Insurance Act 1906 S 32 deals with Double Insurance and states as follows:
- Where two or more policies are effected by or on behalf of the assured on the same adventure and interest or any part thereof, and the sums insured exceed the indemnity allowed by this Act, the assured is said to be over insured by double insurance.
- Where the assured is over-insured by double insurance
- The assured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may think fit, provided that he is not entitled to receive any sum in excess of the indemnity allowed by this Act;
- Where the policy under which the assured claims is a valued policy the assured must give credit as against valuation for any sum received by him under any other policy without regard to the actual value of the subject-matter insured.
- Where the policy under which the assured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any other policy.
- Where the assured receives any sum in excess of the indemnity allowed by this Act, he is deemed to hold such sum in trust for the insurers, according to their right of contribution among themselves.
- Contribution between the Insurers is provided under S 80 of the same act which states as follows:
- Where the assured is over-insured by double insurance, each insured is bound, as between himself and the other insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract.
- If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers, and is entitled to the like remedies as a surety who has paid more than his proportion of the debt.
We are not focussing on the methods of contribution in this paper.
- The key words for double insurance is coverage for the same interests by the same assured for the same perils i.e. if any insured is covered for the same adventure, interests and perils by two or more insurers, then double insurance exists. However, if one or more of these subjects are different or where one or more of the policies are unenforceable for whatever reason such that there is only only one policy on risk, then there would be no double insurance. In North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5ChD at 583, Mellish LJ said ‘The rule is perfectly established in the case of a marine policy that contribution only applies where it is an insurance by the same person having the same rights, and does not apply where different persons insure in respect of different rights. The reason for that is obvious enough. Where different persons insure the same property in respect of their different rights, they may be divided into two classes. It may be that the interest of the two between them makes up the whole property. But then there may be cases where, although two different persons insured in respect of two different rights, each of them can recover the whole, as in the case of a mortgagor and a mortgagee. But whenever that is the case, it will necessarily follow that one of these two has a remedy over against the other, because the same property cannot in value belong at the same time to two different persons …I think whenever that is the case, the company which has insured the person who has the remedy over succeeds to his right of remedy over, and then it is a case of subrogation.’ This simply means that there would be no double insurance if the interests are insured by different parties (mortgagor / mortgagee, bailee / bailor etc).A point to be noted that ‘Increased Value Policies’ which are common in cargo insurance do not give rise to double insurance as the subject matter under such a policy is not on the goods themselves but the increased value.
- Cargo is generally covered under the Institute Cargo Clauses either under the 1/11/09 or the 1/1/82 wordings. Cover may either be for all risks (A Clause) or on specific perils (B or C Clauses). While double insurance may arise due to parties taking cover on the same interest unknowingly, there is no particular advantage as the claimed amount would be capped at either the insured value (with respect to a valued policy) or on the insurable interest (for an unvalued policy and where the policy would provide for a sum insured) at the time of the loss. We understand that in some jurisdictions, exporters are under law required to purchase cargo insurance locally. This may be a source of income to the country which enforces this requirement. However, the parties to the contract may not be comfortable either with the party providing the cover or the cover provided and therefore may wish to cover this again with another insurer in a more ‘comfortable’ jurisdiction. This may obviously be of assistance when a claim arises and therefore the extra expense may well be worth it.If the issues is on the engagement of the policy, it may be worthwhile instead for the Insured to consider a “contingent cover” (which can be defined as a secondary insurance cover taken to protect an insured in case the primary insurance cover does not respond to the loss for one reason or another).
- With respect to H&M Policy, almost all of the forms provide for ¾ RDC with the balance generally being insured with a P&I Insurer. It may also be possible to approach the H&M or the P&I Insurer to seek coverage for 4/4 RDC, the advantage of this being that when there is Collision claim, the Insured needs to deal with only one Insurer (either the H&M or P&I Insurer) instead of seeking agreement from both of them and with one of the Insurers (generally the P&I) handling the claim. While the ITCH 1983/1995 and the Institute Protection and Indemnity Clauses, Hulls – Time 20/7/87 do not have any specific clauses excluding coverage’s if there are other insurances covering the same risk, we understand that the Rules of Mutual Associations (P&I Clubs who are members of International Group of P&I Clubs) providing P&I Cover generally exclude cover if another policy exists covering the same risk by way of an “escape”, “non-contribution” or “other insurances” clauses i.e. if the H&M policy covers 4/4 RDC and the P&I policy covers ¼ RDC, then as there is an another policy covering 4/4 RDC, the P&I policy would not engage for any RDC claim.
- Problems do arise if the Hull Insurer also incorporates a similar “escape” “non-contribution” or “other insurances” clauses in their policy schedule (which was the case in one of the claims which we dealt with and mentioned in 1. above). Effectively, both Insurers are saying that if there is another Insurance cover, then their cover would not engage.We understand that the general practice being followed for such cases (if both the Insurers are entitled to avoid the contract due to the “other cover”), is for both insurers’ to bear in proportion to the sum insured that they would have been liable. This obviously is equitable considering that the Insured had taken Insurance cover to guard against these risks. Having said that, our research does not reveal any determinative rule of law on this aspect and therefore it may be sometimes be difficult to ensure that both Insurers agree to this solution for the common benefit of all parties.
- With respect to intermediaries involved such as container operators, they may cover their equipment under a P&I policy for a specific vessel and at the same time have an umbrella policy covering their equipment. While the Institute Container Clauses, Time 1/1/87 does not exclude coverage for “other covers”, we understand that insurance providers offering bespoke covers do exclude cover for “other covers”. This being the case, we believe that in the event of a claim arising where the Insured is covered with two or more insurers who exclude cover for “other covers”, the claim would be adjusted as mentioned above in the preceding paragraph i.e. both insurers’ bear in proportion to the sum insured that they would have been liable.
- To conclude, more of everything may not be good in all circumstances. It may therefore be best to do a comprehensive check of the policies to ensure that if there is any overlapping cover, you as an Insured consider either ceasing some of the covers, seeking contingent cover or at the least ensuring that your Insurers are aware of the other covers and that they waive exclusions arising due to “other cover”. This will avoid any issues arising out of double insurance at the time of submission of a claim and make the claim process easier.