DR.

RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY, LUCKNOW

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2019-2020
BANKING & INSURANCE LAW
PROJECT

PRINCIPLES OF DOUBLE INSURANCE & CONTRIBUTION

SUBMITTED FOR THE PROJECT WORK UNDERTAKEN IN THE PARTIAL FULFILMENT
OF B.A. L.L.B (HONS.) COURSE AT DR. RAM MANOHAR LOHIYA NATIONAL LAW
UNIVERSITY, LUCKNOW

SUBMITTED TO: SUBMITTED BY:

Dr. Manoj Kumar CHAITANYA

ASSISTANT PROFESSOR (LAW) ENROLMENT NO. 047, SECTION “A”

DR. RAM MANOHAR LOHIYA BA.LLB. (HONS.), 6TH SEMESTER

NATIONAL LAW UNIVERSITY, LUCKNOW.

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 ACKNOWLEDGEMENT

After researching for about a fortnight, I was able to collect sufficient matter to make this project of
‘Principles of Double Insurance & Contribution’. I am deeply indebted to Dr. Manoj Kumar
for his guidance and support.

I would also like to acknowledge the invaluable support of my parents. The advice and suggestions
of all near and dear ones who have helped in shaping new developments in this project.

I would also like to extend my deep gratitude to the staff of Dr Madhu Limaye Library for
helping me with my research and project drafting. I sincerely thank all of you. I welcome any
criticism and suggestions by the people who go through it, for the improvement of my future
projects.

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 CONTENTS

AIM AND OBJECTIVE 4

RESEARCH METHODOLOGY 4
REVIEW OF LITERATURE 4
INTRODUCTION 5
DOUBLE INSURANCE: MEANING 6
Elements to qualify the definition 7
EXCLUSION CLAUSE 8
CONTRIBUTION AND THE CONTRACTUAL CLAUSES 9
Where there are exclusion clauses 9
Determining the proportions 9
CONCLUSION 10
ABSTRACT 11
BIBLIOGRAPHY 12
Books 12
Articles/Thesis 12
Online Database 12

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AIM AND OBJECTIVE

The project aims to explain the principles propounded by the Judicial bodies and their application in
the cases with the help of case laws and the principled settled in the English Law which are widely
practiced by the commonwealth countries and even the countries like US also follow the same
principle.

RESEARCH METHODOLOGY

The project is comprised of library based descriptive research.

REVIEW OF LITERATURE

The principles are settled under common law which are widely appreciated by the other
commonwealth countries. Although it is a live and developing area and some countries like
Australia are in way to enact statutory law on the same, nevertheless, the commentaries of foreign
authors i.e. Alison Radfield, John Bird etc. and Indian author Justice Rangnath Mishra provides a
deep understanding of the concept which could be explored to solve such problems in to an extent
in straight way. Further leading litigation firms are conscious enough to make commentary on the
recent case laws pertaining to the principles which are enlightening for the scholars.

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 INTRODUCTION

Insurance policy is, generally, a contract of indemnity (except for the life covers, fire insurance etc.)
by which insured try to cover the risk can which can occur due to any unfortunate event during the
course of business, in which insured becomes entitled to make the losses good by the insured. Every
business contains risk which can be of different nature and of different extent and to minimize the
risk, businessman pay premium to the insurance companies and in turn if any loss occurs, the
insurance company becomes liable to make the losses good to the extent it promised.

In this event sometimes businessman buys more than one policy to cover the risk which may lead to
confusion in the mind of insured as from which he should claim which is almost a settled principle
and then the dispute arises between the insurers as who should have to compensate which depends
upon the terms of the policies. Nevertheless, it is settled principle that if the risk is covered by two
policies then the insured is entitled to claim from either of them. Problem comes when the
contractual clauses deny the principle applying the law of contract while interpreting the contractual
terms.

While interpreting the insurance law, court has to resort to equity principles to settle the matter and
in any case protect the interest of insured person for which he pays premium.

This project would try to explain the different aspects of double insurance and the principles settled
therein by the court with the help of case law. It would be helpful for the lawman as well as for the
layman to understand the concept which would be helpful for the lawman in interpreting the
insurance law and principles and for the layman to understand and versed with the consequences
involved in different situations.

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 DOUBLE INSURANCE: MEANING

It happens sometime that more than one indemnity policy covers the same risk, the same subject
matter, the same interest, and the same peril or risk, which is known as double insurance.1 Although
it comes to the interpretation of terms of the policy to find out as the case is of double insurance or
not which is always at the verge when comes to these issues and Court take liberal recourse to
construct the same. If there is any doubt as to whether there is double insurance, the doubt is usually
resolved in favour of the insured.2 It is also a settled principle by the Apex Court of India that in
case of any ambiguity the interpretation favours the insured.3

Double insurance usually results from an overlap of cover between two policies, each designed
primarily to cover a different interest e.g. the insured may have household insurance policy with an
extention to cover certain items of personal property outside the home, and a motor insurance policy
under which those items are also covered when in the vehicle. The indemnity principle requires that
the insured should not recover more than the amount of his loss, and he cannot therefore recover the
full amount of his loss from both insurers.4 Indian Court propounded the principle at many times
and High Court of Bombay in Gajanan Moreshwar v. Moreshwar Madan5 held that though the
definition given in Indian Contract Act i.e. Indemnity means “when a person promises to the save
the other from loss caused from the conduct of promisor himself or by the conduct of any other
person”6, is itself complete but we follow English definition which is more complete.

1 Insurance Claims by Alisan Padfield, Tottle Publication, 2nd edit., pg 223.

2See: Australia Agriculture Co v.Saunders (1875) LR 10 CP 668, Portavon Cinema Co Ltd v Price (1939) (Insurance
Claims by Alisan Padfield, Tottle Publication, 2nd edit., pg 223.)
3 National Insurance Co. Ltd. Vs Ishar Das Madan Lal (2007 CTJ 338) (SC).
4 Id.
5 (1942) 44 BOMLR 703.
6 Section 124 of Indian Contract Act, 1872.
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Elements To Qualify The Definition

In order to establish double insurance, three elements must be satisfied i.e.:

i) Same subject matter;

ii) Same interest; and

iii) Same risk

For the first element, the property or liability must be covered by different policies and it is sufficed
if there is a substantial overlapped over the subject matter. In the case of American Surety Co of
NY v Wrightson7, where the first policy covered loss through dishonesty of employee and second
policy covered loss including dishonesty or negligence of employee and fire and theft. The
employee had misappropriated $ 2,600 and the claim has been made to second insurer. Both
insurers conceded that each policy covered the same loss and right.

For the second element, the insured must have the same insurable interest over the subject matter.
In other words, a person insuring must be the same. In the case of North British and Mercantile Fire
Insurance Co v London, Liverpool and Globe Insurance Co8, James LJ held that an insurer had no
right to claim contribution from another insurer, if the persons insuring against the risk were
different persons.

For the element of same risk, the peril that caused loss must be the same in all both policies. By
virtue of Australian Agricultural Co v Saunders9 , where the first policy – fire policy to cover goods
on transit or in warehouse prior to shipment meanwhile the second policy – marine policy to cover
the ship during the shipment and loading from London to Sydney. Later, the goods (wools)
destroyed by fire while in the warehouse. The insured claimed under the first policy but the insurer
resisted as the loss also covered by the second policy. The court held that no double insurance had
established as the marine policy did not cover the wools whilst in the warehouse.

The discussion can be concluded as the insured is not permitted to get more than what he lost. In
light of it if the same subject matter is covered by two policies, it becomes matter of confusion and
sometimes of dispute as per the terms of policies as from whom insured should claim and by whom

7 (1910) 103 LT 66.

8 (1877) 5 Ch D 569; a.k.a. the King and Queen Grenaries case.
9 [1875] LR 10 CP 668.
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the claim should be bore. Principles and rules for the same is almost settled by the judiciary with the
help of equity principles but it is always remained a question whether the case falls in the realm of
Double Insurance which this project would try to explain.

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 insurance10 :

1. transmute the policy into an excess layer policy (an “excess clause”); or

2. limit the insurer’s liability to a rate able proportion of the loss (a “rate able proportion
clause”); or

3. exclude indemnity altogether (an “escape clause”).

EXCLUSION CLAUSE

There are three types of exclusion clause altering the insurer’s liability namely: Escape clause,
Excess clause and Rateable proportion clause. The relevant exclusion clause to be discussed is
escape clause where it allows the insurer to completely escape liability when the loss is doubly
covered.
In general, Lord Scarman in the case of Bankers & Traders Insurance Co v National Insurance Co11
ruled that, if the liability of the insurers had been expressly excluded by the terms of policy, then the
insurers could not be rendered liable to make compensation.
However, the approach taken in the case of The National Farmers Union Mutual Insurance Society
Ltd v HSBC Insurance (UK) Ltd12 was that when two different policies contain a clause excluding
liability in the event of double coverage over the same risk, the liability must be shared equally
between two insurers to produce the only just and sensible result.
But, when two insurers both legally entitled to escape liability, but one of the insurers volunteer to
compensate the insured, Ramli Ali JCA in the case of Overseas Assurance Corp (M) Bhd v MSIG
Insurance (M) Bhd13 held that, the voluntary payment would not trigger the application of
contribution from the appellant as the maxim „equity will not assist volunteer‟ is applicable.

10 http://www.clydeco.com/insight/updates/view/double-or-quits-recent-caselaw-on-double-insurance
11 [1985] 1 MLJ 401, Privy Council.
12 [2010] All ER (D) III (Apr).
13 [2012] 2 MLJ 249.
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 CONTRIBUTION AND THE CONTRACTUAL CLAUSES

It is settled principle that the insured can claim from either of the insurer in case of double insurance
of the same subject matter where there is relatable clause in the policy.

The problem arises when the policies contain exclusion terms. As explained in previous section
exclusion clause may escape the liability of the insurer to pay the indemnity if it contains such
clause which allows him to do so. It can be in any manner articulated by the insurer which court
would interpret in strict sense as it would never allow insurer to escape liability throwing burden on
the other insurer.

Where There Are Exclusion Clauses

One of both of the policies may contain a clause excluding liability if the loss if covered by any
other policy. Where atleast one of the policies does not have such a clause, no difficulty arises from
this- the policy with such an exclusion clause is not on risk, the loss being borne by the policy
which has no such clause.14 Where both policies have such clauses, the law has to avoid the absurd
conclusion that no policy is on risk. English law has solved this dilemma by deciding that in such
cases the exclusion clauses are to be ignored and all policies are on risk.15

Determining The Proportions

English law to a large extent clarified the situation by settling the principle through case laws. The
leading case on the proportion of contribution in English Law is commercial Union Assurance Co
Ltd v. Hayden16. The policy holder had taken out liability insurance covering the same risk with
both parties. The claimant’s policy gave cover up to $ 100,000, whereas the defendant’s policy gave
cover only up to $ 10,000. A loss about $4000 occurred. The claimant paid on the policy, then
sought contribution of 50%, and the question was whether this was the correct proportion. The
defendant argued that the proper approach was to look at the maximum amount for which each
insurer could have been liable and divide the losses in proportion to that figure. The Court of
Appeal rejected this method of calculation, holding the proper answer is the so-called ‘independent
liability’ approach. Under this approach the Court asks how much each insurer would be liable for

14 The Modern Law of Insurance by Mc Ghee, 2nd edit., Lexis Nexis Publication, pg 326.
15See: Weddell v. Road Transport and General Insurance Co Ltd (1932) 2 KB 563; Structural Polymer v. Brwon (2000)
Lloyd’s Rep IR 64. (The Modern Law of Insurance by Mc Ghee, 2nd edit., Lexis Nexis Publication)
16 (1977) QB 804, CA.
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in the absence of other policy. The ration between these amounts then determines the ration in
which the insurers are liable for two policy limits, with the result that each insurer would have been
independently liable for the full amount of loss. Consequently the appropriate contribution was
50%. Clearly, if the loss had been over $10,000, the independent liability approach would have
begun to shift the balance of ultimate liability towards the claimant.

CONCLUSION

The principles are to large extent well established under English Law which is widely used by the
Indian Judiciary as well. The meaning and principles are well settled but in almost all matters of
Double Insurance it comes to the interpretation of the terms of the policy which in the light of
settled principles and the approach which favours the insured and strictly follow the insured not to
them escape from their liability. It varies case to case as per the conditions as insurers always try to
escape the liability to escape from the liability which many a times become problem for the insured
to claim the insured money for which he has already paid the premium. But it’s the Judiciary works
gently to decide the matter within the periphery of established principles by applying them on the
facts.

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 ABSTRACT

Double insurance occurs when a business has insurance cover in respect of the same risk and
subject matter from more than one insurer. Double insurance is not of itself a problem, but it can
lead to insurers arguing about whether they need to pay out at all causing unwanted delay in the
processing of claims. This briefing looks at instances where double insurance may arise and the
practical implications for businesses.

Double insurance must be distinguished from layering of cover. Layering is where policies are
placed with different insurers to cover different levels of exposure i.e. the first losses are covered by
one insurer up to the limit specified in that policy, above that policy limit another insurer will pay
out up to the limit specified in that policy and so on (the first layer is often referred to as ‘primary’
and additional layers as ‘excess’). In such cases there is no overlap or duplication of insurance as
the excess insurer does not have to pay out until the limit on the underlying policy is paid in full by
the primary insurer.

The first point on double insurance is that, in principle, a business should not be left without an
insurance payment. Where there is double insurance, and a business wants to claim in respect of a
loss covered by the two (or more) policies, it will (absent some specific wording in the policy) be
entitled to claim under whichever policy it prefers.

The insurer that does pay out in respect of the doubly insured risk will have a right of contribution
from the other insurer who has provided identical cover. So, if a business does claim under one
policy and not the other, the insurer who has not paid out is likely to have to pay a share to the
insurer who has paid out.

Many policies contain clauses which prevent an insured claiming under the policy if there is other
insurance covering the same loss. If one policy contains this wording, there is no difficulty because
the insured can simply claim on the other policy (there will be no right of contribution between
insurers as there is no double insurance).If both policies contain this clause, then again there is no
problem for the insured, as the clauses effectively cancel each other out and the insured can claim
on either policy for its loss (with the paying insurer claiming a right of contribution from the other
insurer). The problem is that the wording of these ‘other insurance’ clauses is not standard and this
can lead to disputes between insurers as to which policy should respond, leaving the insured waiting
for payment of its claim.

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 BIBLIOGRAPHY

Books

• Padfield Alisan, Insurance Claims, 2nd edit., Tottle Publication.

• Ghee Mc, The Modern Law of Insurance, 2nd edit., 2006, Lexis Nexis Publication.

• Birds John, Bird’s Modern Insurance Law, 8th edit., Sweet & Maxwell.

Articles/Thesis

• Mohamed Nisha, Double Insurance and Contribution, Thesis for the Degree of Doctor of
Philosophy, 2013.

Online Database
• www.academia.edu/.../Written_Submission_on_Insurance_Law_-_doubl

• www.allens.com.au/pubs/insur/pap3aug05.htm

• uk.practicallaw.com/books/9781847668912/chapter13

• https://www.blakemorgan.co.uk/training-knowledge/.../double-insurance

• http://www.clydeco.com/insight/updates/view/double-or-quits-recent-caselaw-on-double-
insurance

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