This article is written by Rohit Jain, a student of Bharati Vidyapeeth University’s New Law College, Pune. 

Background

There may be certain circumstances wherein a person may come across few instances wherein he may find that he had taken overlapping insurance covers over the same subject matter. So does these overlapping insurance cover denotes that he has acquired extra protection over the subject matter? Or is it merely wastage of money? These questions bring to us the most confusing area of insurance law, i.e. the Law of Double Insurance. The purpose of this article is to provide its readers few insights into the concept of Double Insurance and to make them understand the different clauses in an insurance policy by use of which an insurer can avoid his liability in case of Double Insurance.

Introduction

Double Insurance or multiple insurances is the method of getting the same risk or the same subject matter insured with more than one insurance company or with the same insurance company but by two different policies. No provision under the Insurance Act, 1938, or under any other law for the time being, prohibits double insurance, rather the Act facilitates the concept of double insurance. The statutory definition of Double Insurance is provided under Section 34 of the Marine Insurance Act, 1963. So accordingly, every person is at liberty to take as many insurance policies on the same subject matter, as he wishes. The concept of Double Insurance is possible in all types of insurances, may it be a life or general.

In few instances, people deliberately get their property insured with multiple policies, but there are certain circumstances wherein a person may inadvertently fall into the pitfall of Double Insurance. For instance, when I drive your car with your permission, in this case, I have the third party insurance cover under my own insurance policy and I also have the protection under your Motor Vehicle Insurance Policy. So, in such an instance the trouble arises when both of these insurance policies have an ‘escape clause’, by which both is these insurers may avoid their liability. So it becomes very important for the general public to understand these clauses.

Features of double insurance

Following are the features of Double Insurance:

1. More than one Policy: A particular subject matter needs to be insured with more than one insurer or with the same insurer but by two different policies.
2. Same Insured: The insured person must always be the same in double insurances, if the same person is not entitled to the benefits of all the policies it cannot be termed as Double Insurance.
3. Same Subject: All the policies need to be related to the same risk or the same subject matter; if it is not the same then it cannot be called double insurance.
4. Same Interest: The interest needs to be the same in all the concerned insurance policies.
5. Same Duration: at last the duration for which the insurance policy running must be the same.

Sum recoverable under double insurance

In the case of Multiple Insurances, the sum recoverable differs in Life Insurance and General Insurances. Since life insurance contracts are not the contract of indemnity and are contingent in nature, the full amount can be claimed from all the insurance policies. But this situation differs in the case of general insurances, as we know that general insurance contracts are contracts of Indemnity, so nothing above the actual loss can be recovered. In such scenarios, the Principle of contribution (discussed below) will be applied and each insurer will pay their respective share accordingly. An insured is not entitled to recover in full from all the insurance companies, if such recovery is allowed then it will be against the public policy. It must further be noted that if the loss suffered is more than the actual value of the policies, then full amount can be claimed from all the insurers. 

So from a sums recoverability point of view, Life Insurance Policies may prove to be benefiting. On the other hand, it may prove to be detrimental to the interest of an insured.

The principle of contribution

The principle of contribution focuses on equitable distribution of losses between different insurers. As we know that in case of double insurances a claimant is not entitled to recover more than the actual loss, so this principle helps us in the determination of the proportionate amount of each insurers who are liable to reimburse the loss. 

Conditions for Contribution:

1. The matter must be related to General Insurance Policies, as in case of Life Insurances full amount is recoverable.
2. There must be double insurance.
3. All the insurance must relate to the same risk / subject matter.
4. All the policies must be active at the time of claiming the amount.
5. Insurer must have an Insurable Interest in the subject matter and must suffer some actual loss.
6. The policy concerned must cover the event that caused the loss.
7. The total loss shall be proportionately divided.
8. If in any case, one insurer has reimbursed the claimant in full, he is entitled to get his proportionate share from the other insurance companies.

Formula for calculation of Contribution

(Sum assured with one particular insurance company / Total sum assured) x The Actual Loss

Illustration

‘A’ a businessman gets his office insured against fire with two different insurance companies named as XYZ Co. and PQR Co. with an amount of Rs. 50,000 and Rs, 30,000 respectively. Now, on a certain day (when his policy was active) fire takes place at his office and due to that fire a loss of Rs. 40,000 was caused to ‘A’. 

So in this case, since ‘A’ has taken double insurance on his property, he is entitled to claim the amount from both the insurers. And to calculate the proportionate amount of each insurer the principle of contribution will be applied, so that ‘A’ may not claim anything more than his actual loss. So from the illustration above, we have the following details:

• Total Sum Assured: Rs. 80,000
• Actual Loss Suffered: Rs. 40,000
• Sum assured with XYZ Co.: Rs.50,000
• Sum assured with PQR Co.: Rs. 30,000

So, by applying this information in the formula mentioned above, we get:

• XYZ & Co.’s Contribution = Rs. 25,000
• PQR & Co.’s Contribution = Rs. 15,000

Different clauses that the insurer’s uses to avoid their liability in case of a double insurance

In general, most of the Insurance Companies inserts an ‘Other Insurances’ clause in all the policies, so as to avoid their liability in case of double insurance. As a general rule all the insurance holders are entitled to claim the loss suffered to them from which-ever insurance company he/she wishes, but to limit the application of the concept of Double Insurance and the doctrine of contribution the insurers uses such clauses. 

Typically the insurance company uses the following clauses to avoid their liability in case of Double Insurance. They can use any one or the combination from the following: 

• LIABILITY EXEMPTION CLAUSE: As per this clause, the insurer accepts his liability upon a condition that, if the same risk is insured somewhere else also, then in such a case his liability will not arise. Such clauses saves the insurers from two types of liability:

1. Exemption from the liability to indemnify the insured in case of any loss.
2. If the insurer gets the claim from any one insurance policy, then the former insurer will be exempted to that extent.

These clauses may also be called as the escape clauses. Typically such clauses are inserted by the words: If the liability covered under this insurance is insured with any other insurance policy, either wholly or in part, we will not be liable to pay any loss, damages, etc. 

This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Gale vs. Motor Union Insurance Company (1928) IKB 359, National Employer Mutual vs. Heden (1980) 2 Lloyds Report P. 149.

• NOTIFICATION CLAUSE: As per this clause the insured person is required to give a written notice to the insurance company if he gets the same risk insured with some other insurance company, if the insured fails to supply such notice the liability of the former insurance company will be avoided. It is pertinent to note here that the insured person has to give a notice in writing only, oral notification will not work.

Typically such clauses are inserted by the words: No claim shall be entertained if the insured fails to give notice of any subsequent or previous insurance taken on the same subject matter. This clause is discussed by the court in a number of cases, few noteworthy cases on this point are: Australian Agricultural Co. vs. Sandhers (1875) LR, 10 CP 668, Stradfast Insurance Co vs. F & B Trading Co. (1972) 46 AJ LR 14.

• RATEABLE PROPORTION CLAUSE: By insertion of such clauses the insurance companies can avoid partial liability. As per this clause one insurance company shall only cover a portion of loss, is some other policy also responds on the same risk.
• EXCESS CLAUSE: As per this clause the liability of one insurer will arise only in case when the loss suffered crosses the limit of the other insurance. One of the notable case on this point is: Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409. 

Conundrum between the principle of contribution and the exemption clauses

So now we have understood the exemptions clauses used by the insurance companies to avoid their liability. Now, imagine a situation wherein both of the insurance policies have such exemptions clauses. So, what would it mean than, would that means that the insured is not entitled to claim his loss from any of them? If such a thing is allowed it will be against the public policy, and it will decrease the faith of people from insurance policies. So, few principles have been established in relation to these exemption clauses. All of these principles are in favor of the insured. The principles established to clarify this confusion are as follows:

1. SITUATION WHEREIN THERE ARE TWO ESCAPE CLAUSES: So in the situation wherein both the insurance policies have escape clauses, relieving both the insurer’s from their liability; the loss suffered shall be distributed among all the insurer’s in equal proportion.
2. SITUATION WHEREIN THERE ARE TWO EXCESS CLAUSES: The rule in this regards is same as stated above. If both the insurance policies have an excess clause, which relieves them from their liability, the loss in such a case shall be distributed equally amongst all the insurance companies
3. SITUATION WHEREIN THERE ARE TWO NOTIFICATION CLAUSES: If both the insurance policies have a notification clause, which requires a written notice to be given to the insurance company for any prior or subsequent insurance policy taken on the same risk; in such a case failure to give notice to the second insurance company will remove him from the liability, but will make the first insurance company liable, as there will be no other valid insurance at that time.
4. SITUATION WHEREIN THERE ARE TWO RATEABLE PROPORTION CLAUSES: The rule in this case is same as that of two excess clauses or two escape clauses i.e. the loss shall be distributed in equal proportion amongst the insurers. 

Practicable suggestions

Except in case of Life Insurance Policies, double insurance policies do not increase the value of insurance cover. Thus paying more insurance premiums may not be viable economically. Few points that make double insurance policies un-sense-able or practically un-viable are listed below: 

1. Double insurance policies may cause delay in the payment of claims due as it may lead to development of a dispute between the insurer and the insured.
2. Whether you take one insurance policy or two or may be more than that, still nothing more that the loss can be claimed, so the value of insurance cover won’t increase.
3. Multiple Insurances ultimately results in paying too much of premium then you were actually required to.
4. The litigation costs: dispute when taken to the courts leads to prolonged trials and therefore increased litigation cost. Further when the matured policies are placed in conflict, the insurance company would, as per the provision of Section 47 make the payment in the court, which may further prolong the process of claiming the insurance cover.
5. Lack of businessman’s trust on multiple policies.
6. If there will be no multiple policy, things would be a bit more smooth and will consume a bit less time.

Conclusion

On denouement, we can conclude that Double Insurances are the one wherein the same risk or same Subject matter is insured with more than one insurance company or with the same insurer but with different policies. The method of double insurance can also be called as Multiple Insurances. And the sums recoverable in these cases of Double Insurances can never exceed the total amount of loss (except in Life insurance Contracts). And the principle of Contribution is the key, in case of Double Insurance, to decide the proportion of amount each insurance company is liable for.

Further, we have seen different types of clauses which the insurance company uses so as to avoid their liability in case double insurances. And we also looked as to what happen in the scenarios in which both the insurance companies inserts such exemption clauses in their policies. 

At last, it can be concluded, taking double insurance does nothing else than increasing trouble for you. It doesn’t increases the sums recoverable, rather it delays the amount payable and increases trouble for us. 

References

• R.N. CHOUDHARY, LAW OF INSURANCE, 1 (3rd Ed. 2018)
• Double Insurance and Contribution, Lexis Nexis, See here
• Angela Flaherty, Double Insurance, Trouble and Pitfall of other Insurance Porvisions, Monda, see here
• Rohit Jain, Formation of an Insurance Contract, Law Column, See here
• Daniel Scognamiglia, Double Insurance, Blake Morgan, See here
• Burges Salmon, Insurance Briefing, February 2014.

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