Chapter 8 Flashcards
What is a contribution condition
A policy condition limiting the amount an insurer must pay out for a claim to their contribution
What is dual insurance?
Where a policyholder holds two insurance policies that both provide coverage for the same loss
Define contribution
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
When does contribution apply?
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
What is the rateable proportion?
Also called rateable share
The share of a claim that an insurer must pay when contribution is applied
What are the two main ways of calculating the rateable proportion?
- By sum insured
2. By independent liability
When is independent liability used to calculate the rateable proportion?
When the policies are subject to average (underinsurance) or when an inner loss limit applies to a sum insured
How is rateable proportion calculated using the independent liability method?
Policy sum insured/total value at risk)*loss
What is a non-contribution clause?
The policy shall not apply for any claim where insured is entitled to indemnity under any other insurance
Define Subrogation
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
What is the Personal Effects Contribution Agreement (PECA)?
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
In what 3 ways may subrogation rights be caused?
Tort, contracts, Statute
salvage?
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
Subrogation waiver
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
What is the ABI Memorandum of Understanding for Subrogated Motor Claims?
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’.
Tort
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
Contract
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
Statute
most insurer require that claims for riot, civil commotion and malicious damage must be notified within seven days of the event
Common subject matter for contribution
To apply each insurer must provide cover in respect of the subject matter of insurance which suffer loss or damage
By sum insured
One method of calculating the rateable proportion of a loss is by apportioning it in line with
the sums insured under each policy
Common peril
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.
Common insurable interest
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.
