CH 8 CONTRIBUTION AND SUBROGATION

Question 1

Contribution

Answer 1

Shares the loss(in an event of a claim) among insurers who cover the loss.
Contribution supports the principle of indemnity

Question 2

Why do insurers customary include Contribution condition in their policies

Answer 2

This is because if they don’t include it Insured is entitled to claim the whole amount from any of the insurers liable to pay. They will leave one insurer and move on to another to recover the approriate shares

Question 3

What does the Contribution condition restrict

Answer 3

They restrict the insurers liability to its relatable proportion or relatable share of a loss

Question 4

What is the effect of the contribution condition

Answer 4

It’s to compel the insured to make a claim under each valid policy for the sum for which each insurer is liable,if they wish to receive full settlement

Question 5

What is Contribution

Answer 5

Is the right of an insurer to recover part of a claim payment when two or more policies cover the same interest, the same risk and are in force when the loss occurs

Question 6

What should be common for contribution to arise

Answer 6

There should be a common insurable interest, Peril and subject matter.
And there must be some overlap between one policy and another

Question 7

Under contribution, Insurers contribute to a claim on what basis

Answer 7

Under Contribution Insurers contribute to a claim on basis of relatable proportion.
Relatable proportion is the share of claim, that an insurer pay when two or more cover the same risk

Question 8

What are the two possible ways of determining relatable proportion of a claim

Answer 8

1. Sum Insured

2. Independent Liability

Question 9

How is the relatable proportion calculated in relation to Sum Insured

Answer 9

policy Sum Insured/Total Sum Insured( All Policies)* Loss

Question 10

Method of using Sum insured to access contribution is used commonly in which policy

Answer 10

this method is commonly used in Property Polices which are not subject to averaging

Question 11

What does the sum insured method ignore

Answer 11

It ignores the fact that the different restrictions such as averaging or excess may apply to each policy

Question 12

How is independent liability method used to calculate amount payable

Answer 12

This method calculates the amount payable under each policy as if no other policy existed and the insurer was alone in indemnifying the market.The loss is then shared in proportion to the independent liabilities of the two policies

Question 13

When is the independent liability method most commonly used

Answer 13

Its used in property policies that are subject to averaging or when an individual loss limits applies with sum insured. Also calculates contribution in Liability Insurance

Question 14

What is the independent liability formula

Answer 14

Policy Sum Insured/Total value of the risk * Loss

Question 15

which situations modify the principle of contribution

Answer 15

1. Non-Contribution Clauses
2. More specific Insurance clauses
3. Market Agreement

Question 16

What is the common wording for non- contribution clauses

Answer 16

The policy shall not apply for any claim where the insured is entitled to indemnity under other insurance(meaning policy will not contribute if there is another insurance policy in force)

Question 17

What happens to situation where both policies have the same non- contribution clause

Answer 17

They are treated as cancelling each other out. And each insurer has to pay their relatable proportion

Question 18

Subrogation

Answer 18

This is a common law. This is the right of an insurer, following a claim payment,to take over the insured’s right to recover payment from a third party responsible for the loss. It is limited to the amount paid out under the policy

Question 19

How may Subrogation Rights arise

Answer 19

They arise from three ways

1. Tort
2. Contract
3. Statute

Question 20

What is a Tort

Answer 20

Under Common law, everyone has a duty to act in a reasonable way towards others. Thus a breach of duty is called a Tort.
And the person who has suffered this breach is entitled to be compensated

Question 21

How do contracts give rise to subrogation rights

Answer 21

under certain contracts a breach entitles the aggrieved party to compensation regardless of fault

Question 22

Most insurers require that claims for riot, civil commotion and malicious damage to be notified within how many days of the event

Answer 22

Seven Days of the event. This is because under the terms of the Riot regulations 2011 insurers may have rights of recovery against the police for riot damage, but have only 42 days from the date of the riot to do so.

Question 23

What does it mean when a subject matter is beyond economic repair

Answer 23

This means the market practice tends towards repair exceeding 60% of the market value, thus being uneconomic and offer total loss settlement

Question 24

What is Salvage

Answer 24

The residual value on the subject-matter being insured

Question 25

Who is entitled to recieve the salvage value

Answer 25

If the insurer meets the loss in full it is the insurer that is entitled to the benefit of the salvage value.The value of sales proceeds from salvage belong to the insurer
The Financial Ombudsman Service (FOS) states that the insured should always be given the opportunity to retain the salvage, provided a suitable deduction is made to the claim payment to take it’s value into account.
Amount will be agreed upon between the insured and the insurer

Question 26

What does the ABI memorandum set out for subrogated Motor Claim

Answer 26

It sets out principles for subrogated motor claims that are based on honesty and transparency

Question 27

What are the four key elements incorporated in the ABI memorandum, in order to avoid disputes about quantifying subrogated claims, reduce cost and ensure prompt settlements

Answer 27

1. Consistency of practice in the control of own damage claims regardless of any subrogation rights
2. Subrogation costs, should represent the net cost to insurers after all the discounts, and certain items like emergency treatment fees are excluded
3. All materials supporting documentary evidence should be volunteered, together with salvage value and the basis of calculation for written off
4. Legal cost should be avoided wherever possible

Question 28

What is an immobile property agreement

Answer 28

In the past this used to be operated under motor and property polices. It covered impact damage by motor vehicle.
Whenever a vehicle collided with a building this agreement meant that each insurer would contribute towards the loss in the proportion already agreed

Question 29

Precluded Subrogation right

Answer 29

There are some situations in which insurers are barred from exercising subrogation rights or where they agree not to exercise them

Question 30

What are situations where the insurer cannot exercise subrogation right

Answer 30

1. When the Insured has no right. Insurers subrogation rights depend on the fact that the insured has rights against a negligent third party.Thus in circumstances where the insured waves those rights by saying signing a hold harmless clause, the insurer cannot reacquire them
2. Benefit Policies, even if a person negligently causes an accident in which the insured is injured, the personal accident insurer will have no right of recovery, even it the insured successfully sues the negligent third party and receives financial compensation for the injuries, insured is entitled to keep the personal accident benefit and the court award
3. Subrogation waiver, there are times an insurer agree to waive their subrogation rights through a subrogation waiver clause, they are common in commercial insurance. This clause prevents the insurer from pursuing subrogation rights it may have against parent or subsidiary company of the insured
4. Negligent Fellow employees, Insurers have generally agreed(except in extreme circumstances) not to pursue recovery rights against negligent fellow workers

Question 31

when can insurers claim under their own name

Answer 31

They can claim under there own claim under the Riot(Damages) Act 1886

Question 32

Which market agreements reduce the correspondence and administrative costs involved in pursuing frequent subrogation procedures

Answer 32

1. The ABI memorundum understanding-Subrogated motor claims

2. Immobile property Agreement

Question 33

At what stage in the claims process can an insurer pursue subrogation rights from the responsible third party

Answer 33

As soon as its own insured’s claim is notified