Double or Quits: recent Caselaw on Double Insurance

First published in The Review August 10

Double insurance arises when the same party is insured with two (or more) insurers in respect of the same interest on the same subject-matter against the same risks. The general rule is that (subject to the terms of each policy), the insured can recover in full from either insurer and the paying insurer is then entitled to a contribution from the other insurer.

Insurers commonly try to limit, or even exclude, the right of contribution by including a contractual term in their policy. The most commonly used terms are designed to have the following effects if there is other insurance:

transmute the policy into an excess layer policy (an "excess clause"); or limit the insurer's liability to a rateable proportion of the loss (a "rateable proportion clause"); or exclude indemnity altogether (an "escape clause"). A recent case, National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd ("the NFU case"), provides a reminder of two questions which have to be asked in the event of potential double insurance:

Background

Following exchange of contracts on a property, the risk of damage to a property passes to the buyers (under common law). In the NFU case, the buyers therefore took out a policy with NFU, which insured them against damage by fire. The policy provided that if there was insurance covering the same damage, the insurer would only pay its share (i.e. a rateable proportion clause). Following a fire at the property 17 days after exchange of contracts, NFU paid out and the issue then became whether there was any other insurance covering the same damage.

The sellers were insured by HSBC at the time of the fire against damage to the building, and the policy contained an extension covering anyone buying the property (until completion of the sale or the end of the policy, whichever was sooner) but provided that the insurer would not pay "if the buildings are insured under any other insurance".

Question 1: Is this really a case of double insurance?

The deputy judge (Gavin Kealey QC) held that this was an escape clause and that therefore the only policy covering the buyers in respect of the fire was the NFU policy. He said that "the grant of buildings cover by HSBC to buyers ... was directly qualified by the proviso [i.e. that there is no other insurance in place]: the one cannot properly be separated from the other". Accordingly, this was not a case of double insurance. The buyers were never...