Memorandum of Double Insurance and Contribution Research (Essay Sample)

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Memorandum of Double Insurance and Contribution
* Introduction
When an assured party receives an insurance policy from an insurer there is a major concern about fraud. This is because; the assured has the freedom to acquire several policies and be indemnified under all his acquired policies, hence there is a possibility of the assured being paid more than his entitlement. The prevention of fraud arising out of insurance matters is justifiable hence various exclusions and limitations in insurance contracts according to Insurance law are of great assistance when preventing the recovery where there is another effective insurance cover. However, the level of adequacy of techniques intended to protect insurers in matters of contribution in relation to other insurers needs to be addressed.
As a result, from different jurisdictions courts have made attempts to handle the tribulations which have resulted from double insurance instances, as well as the issue of whether the assured party should be given the protection sought when double insurance is in existence, and if so, whether the insurer should pay out under the insurance policy.
Where legislation clauses are unambiguous, when dealing with such cases, most likely the sitting judges may draw a conclusion the matter in question does not amount to of double insurance. Although trial judge may be of the view that the presented case, based on the facts, would amount to double insurance, however on appeal, the courts of appeal have drawn a conclusion that, case facts do not create one of double insurance. This evidently indicates the complexities in the concept double insurance where courts have not successfully been able to provide some tangible rules and guidelines to handle double insurance.[National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm)]
* Essence of Double Insurance
A contract of insurance is a contract that is made up by the Insurer and the Assured. The insurer receives a premium and as a consideration for the premium, amount of payment is made to the assured on the occurrence of any incident which the assured has the insurance acquired. Usually, but not in each and every situation, a certain amount of consideration is required; certain sum would be paid out on definite occurrence, where certainty is key, illustratively in terms of the time the event is likely to happen.[Prudential Insurance Co v IRC [1904] 2 KB 658 at 663] [Ibid]
The incident occurrence that can be covered may comprise of the following categories:[Hardy Ivamy General Principles of Insurance Law E.R(Butterworths, 6th Ed, 1993)p.7]
* Marine insurance;
* Fire insurance;
* Life insurance;
* Accident insurance.
The distinguishable character among these classes is based on how the assured has suffered a loss due to the specified incident, but such indemnity, does not include life and sickness insurance as well as personal accident insurance.[Ibid] [ibid]
The legislation definition of double insurance is where by an assured effectuates two or more policies fully on the equivalent adventure and interest or partially thereof, where the amount insured exceeds the indemnity permissible by the Marine Act, then the assured is considered to have over-insured by the double insurance. Moreover the Act deals with situations where the assured is over insured by double insurance, where unless there is a clear clause in the existing policy, an assured may allege payment from the insurers, provided that he does not receive money in excess of the indemnity allowed by this law in force. When the assured party places his claims under a valued policy, the assured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured. When the policy under which an assured party claims is an unvalued policy he must issue credit, against the total insurable values, for any sum received by him under the policy and if the assured receives any money in excess of the indemnity allowed by the marine, such party is deemed to hold such amount of money in trust for the insurers, in accordance with their rights of contribution amongst themselves.[Section 38(1) Marine Insurance Act 1909]
Historically, the concept of double insurance came into existence as early as 1770s while making decision in earlier cases, on issues concerning marine insurance such as Newby v Reed. The basic principle in double insurance and contribution applies when two or more insurers cover the same category of policy, an implication that each policy must indemnify the same loss against the same assured.[Newby v Reed. (1763) 1 Wm B1 416]
* Aspects of double insurance
Generally double insurance is described in two aspects;
* The insured is not entitled to recover his indemnity in excessive although he has a right to decide which policy to claim from
* The chosen insurer and who pays the claims has a right to receive contribution from the rest of insurers covering the same risk.
When structuring the practice and essence of double insurance, the doctrine of contribution originate where according to the Courts of Equity in decision making, regulation and direction of the cause of the action occurring should be under deeds or contracts, and not should not be created out n independent and separate causes of action, considering that recognizable matters which were as a rule to the subject of law in specified circumstances fell within the sphere of equity. Usually this may include circumstances where there is unavailability of legal remedies, where efficiency would be achieved through the equitable remedy, or if the procedural steps in equity led to a position that is more favorable to the parties.[The insured himself should take and conclude proceedings in respect of a claim based upon a loss which was in the cover] [Legal and General Assurance Society Ltd v Drake Insurance Co Ltd [1991] 2 Lloyd’s Law Reports 44, per Gibson L.J]
With reference to the existing policies, the apportionment of the damage suffered should be done according to various rules of practice adopted more or less similar by the no of insurers in a double insurance situation. There is a distinction in practice which is drawn to indicate the degree to which the policies specify the contract an indication that such policies would not be subject to average while those on the contrary will be matter to average. There has been a continuous approach by the courts to create a more flexible consideration when applying the principles of equity as well as the adjustment of the rights of the parties in case of necessity, regardless of whether it heads off from the law at the particular time. This approach should be adopted and favour should be given ultimately to the assured[Hardy Ivamy General Principles of Insurance Law E.R(Butterworths, 6th Ed, 1993) 523] [Ibid]
* The Insurance clauses under double Insurance
When an assured intents to insure property, he aims at protecting the property against any damage causing his loss, hence hopes for reinstatement should such happening occur. However, this is not an easy functioning due to methods setup and often adhered to by the insurers either by limiting or completely excluding the liability which involved the inclusion of various clauses into the insurance contract. The combination of the contract clauses in selective cases could create complexity. The mechanism relied on by the insurers can be classified into the following kinds;[Other insurance Clauses usually come in the following form: (1) those which absolve an insurer from liability should other insurance covering the same risk be in existence or be effecting during the period of cover, unless the insurer is notified in writing of that other insurance; (2) the clause restricts the insurer’s liability to the loss in excess of that covered by other insurance; and (3) the clause restricts the insurers liability to a rateable proportion of any sum payable in the event of any loss]
* exclusion clauses
* rateable proportion clauses
* excess clauses
* Other insurance clauses.
The objective of the clauses is to cater for situations where double policies have been effected by the insured against an identical peril. These clauses can be expressly applied effected under a policy in existence in accordance to any peril or property insured by the instant policy. Therefore it is essential for the insured party to carefully appraise policies separately in order to realize if such policy covers a peril or item of property covered to avoid the conflict of such provisions. These clauses primarily protect the insurer(s) from fraud claims dues to over-insurance, by availing the assessment of claims, and permit the insurer to seek contribution where suitable from other insurer(s).[Desmond Derrington and Ronald Shaw Ashton. The Law of Liability Insurance. (LexisNexis Butterworths, 2nd ed. 2004) p 675, 676.]
In some situations, the insurer(s) may take in a permutation of the above mentioned clauses in the issued policy hence causing difficulty and possibly leaving the assured without any insurance cover for the damage incurred. The level of uncertainty is because the courts have been avoiding to deal with cases of such nature by stating that the issue presented before them is not one of double insurance or the absence of standard principles that could be adopted in other cases incase similar situations occur. Suppose the insurer opts to have clauses in the policy limiting or excluding liability covered by the assured, then the insurer should be permitted to do so, whereas the assured should not lose out on paying the premiums even if high under the policy. Therefore an insurer should be allowed such protect...