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Marine Insurance Law in LLM International Trade Law...

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DOUBLE INSURANCE Marine Insurance and P&I Practice Project

What is Double Insurance? Double insurance is a type of insurance where the same subject matter is insured more than once. In such cases the same subject is insured, but with different insurers. The method of double insurance is considered a legal act. In case of loss the insured can claim from both the insurers and the insurers are liable to pay under their respective policies.1.'

Over Insurance by Double Insurance Over-insurance by double insurance occurs when '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 the Act'. 2The same assured is insuring the same subject-matter, for the same adventure, for the same interest, and for the same perils. There is no double insurance where one or more of these subjects are different, or where one of the policies is, for whatever reason, unenforceable. The common law definition provided by Lord Justice Mellish in North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co,3 albeit a fire policy, clearly explains the basis of the rule. He 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

Return of Premium in Case of Over Insurance by Double Insurance An insurer is not liable for more than his share of the risk. The corollary of this is that an assured who has over-insured by double insurance would be able to recover a proportionate part of the several premiums which he has paid to the various insurers. The right to demand a return of premium in such a case is, however, subject to the provisoin s 84(3)(f) of the Marine Insurance Act 1906 that a premium is not returnable if: 1 Double Insurance Law and Legal Definition | USLegal, Inc.. https://definitions.uslegal.com/d/double-insurance/ 2 English Marine Insurance Act 1906 s.32 3 (1877) 5 Ch D 569 at p 583.

'(a) the polices are effected at different times, and an earlier policy has at any time borne the entire risk; or (b) a claim has been paid on one policy in respect of the full sum insured thereby, or (c) the double insurance is effected know ingly by the assured .'4

When does Double Insurance arise? 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 against the same risk and for the same period of time. 

Same insured: There can be no double insurance unless at the time of the claim, the same person is entitled to benefit from each policy.

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Same subject matter: It is not clear whether the policies must cover exactly the same property in its entirety or whether covering a substantial part of the property would suffice. What is important is that the subject matter in respect of which the claim is made is covered under both policies.

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Same risk: Double insurance will only arise if a substantial part of the same risk is covered by both insurances.

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Same interest: The policies must also cover the same interest. This is due to the fact that it is not the subject-matter of the insurance as such which is covered by the policy but the insured’s interest in it. There would therefore be no double insurance if two people who have different interest in the subject matter insure their own interest.

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Same period of time: Finally, the periods of time within each of the policies’ terms during which the insured party is protected from the risk must be the same, or substantially the same. It must also be during that period of time that the event giving rise to the claim occurs.

4 An assured who deliberately over-insures by double insurance may well be found guilty of a breach of the duty of utmost good faith (s 17) and of disclosure (s 18) of Marine Insurance Act 1906

Whether or not the above conditions are satisfied will be a matter of construction of the policies’ wordings.

Double Insurance in Indian Law The Indian provision with regard to Double Insurance is similar to that of Section 32 of the British Marine Insurance Act. Section 34 of Marine Insurance Act, 1963 goes as follows5: 1) Where two or more policies are affected 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. (2) Where the assured is over-insured by double insurance— (a) 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; (b) where the policy under which the assured claims is 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; (c) 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; (d) 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.

Double Insurance Policy Clauses Normally, in the event of double insurance, if a loss is caused by the risk insured against, subject to the terms of each insurance policy, the insured may recover the whole amount of his or her loss from whichever insurer or insurers he selects. Upon such indemnity being paid from one insurer to the insured, that insurer becomes entitled to claim contribution from the co-insurer.

5 MARINE INSURANCE ACT, 1963 11 of 1963 18th April,1963

In practice, the right to a contribution between insurers can be varied or excepted by the terms of each policy or by agreement between the insurers. In the absence of the latter, the issue will most commonly be a matter of construction of the clauses contained within each policy document, which would often aim to pre-empt contribution claims. The most common double insurance clauses comprise of one or a combination of the following: 

Notification clauses: Notification clauses provide that unless the insured gives a written notice to the insurer regarding the existence of a second insurance covering the same risk, the policy will be void. The usual wording would be: “No claim shall be recoverable if the property insured be previously or subsequently insured elsewhere, unless the particulars of such insurance be notified to the company in writing.”6

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Rateable proportion clauses: Rateable Proportion Clauses have the effect of preventing an insured from claiming his or jercomplete loss from one insurer. Rather they provide that each insurer will be liable for a rateable proportion only. The usual wording would be: “If at the time any claim arises under this policy there is any other existing insurance covering the same loss damage or liability the company shall not be liable to pay or contribute more than its rateable proportion of any loss damage compensation costs or expense.“7

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“Escape” clauses: The effect of these clauses is to relieve the insurer from any liability under the policy in the event of double insurance. Typical wording would be: “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 amount which would have been covered under such other insurance had this insurance not been effected.“8

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Excess clauses: The result of these clauses is to turn the policy into an excess insurance wherein it will only come into play if the loss exceeds the limit of the other insurance. The usual wording would be: “If at the time of the occurrence of any injury … loss, or damage, there shall be any other indemnity or insurance of any nature … wholly or

6 The Australian Agricultural Company v Saunders (1874-75) L.R. 10 C.P. 668 7 Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409 8 National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd[2010] EWHC 773 (Comm)

partly covering the same, the underwriters shall not be liable to pay or contribute towards any such injury, loss or damage except in excess of the sum or sums actually recovered or recoverable under such other indemnity or insurance.“9 In the recent Australian case of Allianz v Underwriters at Lloyd's10, the NSW Court of Appeal held that a competing 'escape clause' and an 'excess clause' operated to cancel each other out.

Doctrine of Contribution When the subject matter has been insured with different insurers, the principle of contribution applies between different insurers. The main aim being to distribute losses equitably among different insurers, who are liable under various policies of the same subject matter. This doctrine applies only to contract of indemnity. Doctrine of Contribution and Double Insurance In the event of overinsurance by double insurance, fairness has also to be observed amongst the insurers. Each insurer should not have to contribute more than his proportion of the loss. Section 80 of UK Marine Insurance Act 1906 spells out the rules as to how the matter is to be resolved amongst the insurers inter se. The fundamental rule is that he should not incur more than 'the amount which he is liable under his contract'.11

Difference Between Double Insuarnce and Reinsurance While Double insurance is understood as insurance wherein the property or asset, is insured with multiple insurers or under multiple insurance policies with the same insurer. On the other hand,

9 Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 Ll L Rep 409 10 [2019] NSWCA 271 11 Hodges, Susan. Law of Marine Insurance. Routledge, Is an Imprint of the Taylor and Francis Group, 2016.p.6

reinsurance can be defined as the arrangement that aids insurance company to transfer the risk on the insurance policy to another insurer. (a) Double insurance involves the SAME INTEREST. Reinsurance is an insurance of different interests; (b) In double insurance, the insurer remains in such capacity; in reinsurance, he becomes an insured in relation to the reinsurer; and (c) In double insurance, the insured in the first contract is a party in interest in the second contract; in reinsurance the original insured has no interest in the reinsurance contract.

Conclusion It has been learned that Double insurance arises where an insured has at least two insurance policies which apply to the same interest on the same subject-matter against the same risks. Over-insurance by double insurance occurs when '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 the UK Marine Insurance Act 1906. The Indian Marine Insurance 1963 is based on the UK Marine Insurance Act of 1906. Section 32 of the UK Marine Insurance Act 1906 and Section 34 of the Indian Marine Insurance Act 1963 defines Double Insurance. The difference between Reinsurance and Double Insurance is that while Reinsurance can be defined as the arrangement that aids insurance company

to transfer the risk on the insurance policy to another insurer, Double insurance is an insurance wherein the property or asset, is insured with multiple insurers or under multiple insurance policies with the same insurer.

Bibliography 

Law of Marine Insurance by Susan Hodges

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Law of Marine Insurance by Arnould

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The Principle of Indemnity in Marine Insurance Contracts: A Comparative Approach by Kyriaki Noussia...