Property Matters June 2010

Are you (doubly) insured?

Double insurance arises where the same party is insured with two (or more) insurers in respect of the same interest, on the same subject matter and against the same risks.  If a loss occurs, the general rule is that the insured may recover the whole of the loss from either insurer.  That, however, is subject to any particular modifying terms and to the limits of indemnity provided under each insurance contract.  Upon the indemnity being paid to the insured by either one of the two insurers that insurer is, in general, entitled to recover a contribution from the other.  However a right of contribution can be varied or excluded by contract – either by a contract between the two insurance companies or by a contract between the insured and the insurer.

Whether or not double insurance existed was the issue in the recent case of The National Farmers Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd.  But why would someone insure twice?  Double insurance might arise, for instance if your coat was stolen from your work place and the loss is covered by both your employer’s insurance and your own home contents policy or where someone drives a friend’s car and that friend’s policy permits others to drive the car and the driver’s own insurance policy covers the driving of other cars with the owner’s permission. 

In a property context it can arise in the unfortunate circumstances which affected the insured parties in this case.

Facts
Mr Abel Smith and others (“the sellers”), exchanged contracts in October 2007 with Mr Spaull and Miss Armstrong (“the buyers”) to sell The Old Hall in Rutland for £1.81m.  Completion was set for the following month but before this could take place a fire broke out at the property and caused extensive damage.  Initially the buyers were unwilling to complete on the due date but subsequently did complete in March 2008 at the full purchase price.

The buyers made a claim under their own insurance policy taken out with The National Farmers Mutual Insurance Society Limited (“NFU”) after exchange of contracts and received £1.85m in settlement.  NFU then sued HSBC Insurance (UK) Limited (“HSBC”) who were insurers of the property on behalf of the sellers.  NFU was claiming a contribution from HSBC on the ground that both NFU and HSBC were insuring the property at the time of the loss and should share the cost of the settlement sum paid to the buyers.

Insurance Terms
In order to determine the liability of HSBC it was necessary to analyse the actual cover provided under its insurance policy with the sellers.

The Judge explained three main classes of insurance policy provision that attempt to avoid or limit an indemnity in the event of other insurance covering the insured:

• An “escape” provision – which aims to exclude an indemnity altogether in the event of other insurance.
• A “rateable proportion” provision - which limits the insurer’s liability to a rateable proportion of the loss in the event of other insurance.
• “Excess” provisions - which provide that in the event of other insurance the subject policy operates as an excess policy and only responds if and when the insured loss exceeds the amount of coverage recovered or recoverable under the other policy.

The HSBC policy contained a provision covering the property for physical loss or physical damage and also covered “anyone buying your home that will have the benefit of (buildings insurance cover) until the sale is completed or the insurance ends, whichever is the sooner”.

The HSBC policy also provided:
“We will not pay any claim if any loss, damage or liability covered under this insurance is also covered wholly or in part under any other insurance except in respect of any excess beyond the amounts which would have been covered under such other insurance had this insurance not been effected.”

The NFU policy said:
“If when you claim there is other insurance covering the same accident, illness, damage or liability we will only pay our share.”