Chapter 8

Question 1

What is a contribution condition

Answer 1

A policy condition limiting the amount an insurer must pay out for a claim to their contribution

Question 2

What is dual insurance?

Answer 2

Where a policyholder holds two insurance policies that both provide coverage for the same loss

Question 3

Define contribution

Answer 3

The right of an insurer to recover part of a claim payment where two or more policies cover the same subject matter and risk, and are both in force at the time of loss

Question 4

When does contribution apply?

Answer 4

Two or more policies of indemnity cover the same insurable interest, subject matter and common peril. Both are liable for the loss and neither contains a non-contribution clause

Question 5

What is the rateable proportion?

Also called rateable share

Answer 5

The share of a claim that an insurer must pay when contribution is applied

Question 6

What are the two main ways of calculating the rateable proportion?

Answer 6

1. By sum insured

2. By independent liability

Question 7

When is independent liability used to calculate the rateable proportion?

Answer 7

When the policies are subject to average (underinsurance) or when an inner loss limit applies to a sum insured

Question 8

How is rateable proportion calculated using the independent liability method?

Answer 8

Policy sum insured/total value at risk)*loss

Question 9

What is a non-contribution clause?

Answer 9

The policy shall not apply for any claim where insured is entitled to indemnity under any other insurance

Question 10

Define Subrogation

Answer 10

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

Question 11

What is the Personal Effects Contribution Agreement (PECA)?

Answer 11

A market agreement between members of the Association of British Insurers (ABI)

Where is an overlap between travel, household, motor personal effects, and all risk policies, insurers will not insist an insured make separate claims against each insurer in proportion where the loss is modest. This is regardless of the policy conditions

Question 12

In what 3 ways may subrogation rights be caused?

Answer 12

Tort, contracts, Statute

Question 13

salvage?

Answer 13

Market practice tends towards repairs exceeding 60% of market value as
being uneconomic. Of course, when this happens there may be some residual value in the
thing insured. This is termed salvage. If the insurer meets the loss in full it is the insurer that
is entitled to the benefit of the salvage value

Question 14

Subrogation waiver

Answer 14

There are circumstances in which insurers agree to waive their rights of subrogation. They
do this through subrogation waiver clauses, which are common in commercial insurances.
These clauses are usually designed to prevent the insurer from pursuing any subrogation
rights it may have against a parent or subsidiary company of the insured

Question 15

What is the ABI Memorandum of Understanding for Subrogated Motor Claims?

Answer 15

This does not seek to avoid apportioning blame nor does it have an agreed formula for
sharing losses. Instead it sets out principles for subrogated motor claims that are based on
‘honesty and transparency’.

Question 16

Tort

Answer 16

under the common law, everyone has a duty to act in a reasonable way towards other a breach of this
duty is called a tort

Question 17

Contract

Answer 17

under certain contracts a breach entitles the aggrieved party to compensation, regardless of fault.
Insurers can assume the benefits of these rights. Many building projects are entered into under particular
forms of contracts that specify the legal and insuring responsibilities of the parties, principal, contractor and
subcontractor

Question 18

Statute

Answer 18

most insurer require that claims for riot, civil commotion and malicious damage must be notified within seven days of the event

Question 19

Common subject matter for contribution

Answer 19

To apply each insurer must provide cover in respect of the subject matter of insurance which suffer loss or damage

Question 20

By sum insured

Answer 20

One method of calculating the rateable proportion of a loss is by apportioning it in line with
the sums insured under each policy

Question 21

Common peril

Answer 21

The peril which causes a loss must be common to both contracts. Let us consider a situation where we have two policies: one covering dishonesty and the other covering dishonesty, fire
and burglary.

Question 22

Common insurable interest

Answer 22

Contribution only applies where the policies cover a common interest in the subject-matter.
In other words, the insurable interest is the same (owner, user, bailee etc.). This principle
was established in the case of North British and Mercantile v. Liverpool and London and
Globe (1877), known as the King and Queen Granaries case.