Recoveriescorp

Dual Insurance: Common Mistakes

Jonathan Agnew, Head of Insurance at recoveriescorp, looks at the common errors made when managing dual insurance claims and collaborates with Brett Turnbull, Solicitor Director/National Practice Manager of Mason Black Lawyers, to explain dual insurance and the recovery of a contribution from a co-insurer.

“When managing dual insurance claims on behalf of clients, we often encounter knowledge gaps around the correct application of dual insurance principles,” says Jonathan Agnew. The purpose of this article is to help bridge the knowledge gap by summarising the key elements of dual insurance claims and addressing the common errors and misunderstandings we encounter at recoveriescorp when negotiating dual insurance settlements.

 

What is dual insurance?

It is a situation where the same risk is insured by two overlapping but independent insurance policies.

 

Is it lawful to obtain dual insurance?

Yes. In addition, there is no general duty on an insured to notify an insurer regarding other insurance covering the same risk.

 

What are examples of how dual insurance might arise?

Example 1: A contractor and sub-contractor working on a major project may have separate but overlapping policies of insurance for damage caused by negligent employees on site.

Example 2: If your golf clubs are stolen, you may be covered under both your home (contents) policy and the golf club’s insurance policy.

Example 3: If you claim on a travel insurance policy you may also be covered by a premium credit card travel insurance benefit.

 

Can an insured claim on both policies?

Yes. However;

  • An insured does not have to make a claim on both policies
  • Under s76 of the Insurance Contracts Act 1984 the second insurer is still liable to pay the first insurer their share even if no claim is ever lodged on their policy
  • Only one excess is payable (usually to the first insurer)
  • An insured cannot recover from both insurers more than the sum required to cover their loss
  • Each insurer is liable for no more than the maximum sum insured under the relevant policy of insurance.

In the example of the golf clubs, the insured would commonly make a claim under their home contents policy and recoveriescorp would make enquiries to determine whether there was an overlapping policy through their golf club membership or vice versa. Pursuant to s76 of the Insurance Contracts Act 1984, recoveriescorp would then seek a contribution from the other insurers on behalf of its client.

Where dual insurance exists, any claim against another insurer for a co-contribution under s76 cannot be opposed simply on the basis that the insured did not submit a claim to the second insurer. This is a major component of the knowledge gap referred to above and the cause of much unnecessary delay and litigation.

 

When does dual insurance not apply?

If the two overlapping polices do not cover the same loss then there can be no claim for co-contribution under s76.

For example; Mason Black Lawyers has handled several claims recently for dual insurance co-contribution for theft of goods from inside a vehicle. In some of these, recovery was achieved from the second insurer. In others, recovery was not possible, usually because the second policy did not provide cover for theft of the goods from a vehicle, or the insured did not select the extension of cover on the second policy.

This is an important point to note, as in these cases dual insurance does not arise and the ability to seek co-contribution fails.

 

How is the contribution calculated?

In most straight forward cases the loss is shared equally between the insurers and this is recognised as being a fair and just manner of dividing the insured loss between the insurers.

For example, based on a small loss of $6,000 less the insureds $500 excess:

Insurer A settles the insured $6,000 less $500 excess = $5,500

Insurer A then requests a 50% co-contribution of the net settlement from Insurer B

Insurer B settles Insurer A $2,750

In larger losses with differing policy coverage limits, for example if Policy A has a limit of indemnity of $2 million and Policy B has a limit of $3 million, each insurer’s contribution is the proportion that its maximum potential liability bears to the aggregate of maximum potential liabilities under all overlapping policies. For example, if Insurer A pays $1 million for its insured loss, Insurer A would calculate the contribution that it claims from Insurer B as follows:

Insurer A liable for:      $2 million / $5 million x $1 million = $400,000

Insurer B liable for:      $3 million / $5 million x $1 million = $600,000     

Therefore, Insurer A would seek a contribution of $600,000 from Insurer B.

 

What about case law and the knowledge gap?

We find that insurers frequently attempt to avoid a claim for contribution on the basis that no claim has been received and/or no excess has been paid. The following case is authority that the insurer is liable for contribution even if no claim has been received:

In Legal & General Assurance Society Ltd v Drake Insurance Co Ltd [1989] 3 All ER 923 a motor vehicle owner was entitled to claim under two third party liability policies. He claimed against the plaintiff who duly paid and the plaintiff then sought a 50% contribution from the other third party liability insurer, the defendant. The defendant resisted the claim for contribution on the basis that the insured had not made a claim against it and therefore had not complied with a condition precedent to liability expressed in its policy. In rejecting the defendant’s argument, the court held that the plaintiff was entitled to a 50% contribution as it had insured the same interest against the same risk.

If there is dual insurance and the shared risk occurs, fairness demands that an insurer who pays the loss arising from the shared risk has a right to claim contribution from any other insurer who insured the same person against the same risk of loss under another indemnity insurance contract: Burke v LFOT Pty Ltd [2002] HCA 17.

An insurer’s only right in circumstances of double or dual insurance is to claim contribution in its own name from the other insurer: Sydney Turf Club v Crowley [1972] HCA 25.

 

Summary

Dual insurance and contribution applies when the same risk is insured by two overlapping but independent insurance policies.

A claim for contribution is not dependent upon the second insurer receiving a claim or policy excess from the insured. Any claim against another insurer for a contribution under s76 of the Insurance Contracts Act 1984 cannot be opposed simply on the basis that the insured did not submit a claim or pay an excess to the second insurer.