10. Principles of Contribution and Subrogation Flashcards
What is the definition of contribution?
Right of an insurer to recover part of a claim payment where two or more policies cover the same interest, risk and in force when loss occurs
How does contribution arise?
Seeks to share burden of loss fairly among all insurers who cover the loss
What are the requirements for contribution?
- Two or more policies
- Common insurable interest
- Common peril which gives rise to loss
- Common subject matter
- Each policy liable for loss
- Neither policy have non-contribution clause
What is a contribution condition?
Restrict’s insurers liability to it’s rateable proportion or share of loss
Compels insurer to claim under each policy
What is rateable proportion?
The share of a claim the insurer pays
2 ways to determine: sum insured and independent liability
What is sum insured (rateable proportion)?
(policy sum insured / total sum insured all policies) x loss
Used for property policies not subject to average and have identical subject matter
What is independent liability (rateable proportion)?
Calculates amount payable under each policy as if no other existed then loss shared in proportion to independent liabilities
Used in property policies subject to average or loss limit within sum insured
(policy sum insured / total value at risk) x loss
How can contribution be modified?
- Non contribution clause, if similar ones in other policies then cancel each other our
- More specific insurance clause
- Market agreements for overlapping cover
What is the definition of subrogation?
Right of an insurer, following payment of a claim, to take over insured’s right to recover payment from third party responsible for loss
Limited to amount paid out
Insurer’s include condition to give them power to pursue subrogation before claim is paid but must have paid own insured claim
What are the 3 ways subrogation can arise?
- Tort
- Contract
- Statue
How does subrogation arise from Tort?
Common law everyone has duty to act in a reasonable way towards others, breach = tort
Compensate those who suffer damage or loss
Insurers assume right and attempt to recover
How does subrogation arise from contract?
Under certain contracts a breach entitles aggrieved parties to compensation regardless of fault
How does subrogation rise from Statue?
Claims for riot, civil commotion and malicious damaged must be notified within 7 days
Riot Act 2016 - insurers may have rights of recovery from police but only have 42 days
When is a total loss offered?
Subject matter beyond economic repair (exceeds 60% market value)
What are insurer’s subrogation rights arising from subject matter?
When total loss there might be some residual value (salvage), if insurer meets loss in full they are entitled to the salvage
FOS - insured should always be given right to retain salvage with claim reduced
