Chapter 8 Flashcards
What is contribution?
Contribution is the right of an insurer to recover part of a claim payment where two or more policies cover the same interest, the same risk and are in force when the loss occurs.
Under common law, what must be satisfied before contribution arises?
1.Two or more policies of indemnity must exist
2.The policies must cover a common insurable interest
3.The policies must cover a common peril which gives rise to the loss
4.The policies must cover common subject-matter
5.Each policy must be liable for the loss
6.Neither policy must claim a non-contribution clause
What is rateable proportion?
Rateable proportion is the share of a claim that the insurer pays when two or more insurers cover the same risk, usually in proportion to respective sums insured.
When dealing with rateable proportion, what are the two ways of determining the rateable proportion of claim?
By sum insured
By independent liability – This calculates the amount payable under each policy as if no other policy existed, this sum is then shared in proportion.
How can the principle of contribution be modified?
Non-contribution clauses – This states ‘ This policy shall not apply in respect of any claim where the insured is entitled to indemnity under any other insurance’ .
More specific insurance clauses – Certain policies include a clause which restricts cover in situations where a more specific insurance has been arranged.
Market agreements – These allow for smooth path for contribution.
What is subrogation?
Subrogation is a common law right. Any means of reducing the size of the loss by exercising recovery rights are for the insurers benefit, up to the amount the insurer has paid out. The insured cannot claim an indemnity payment from an insurer and then go onto make a claim from a negligent third party. This would result in a profit for the insured, breaching the principle of indemnity.
Why can insurers sometimes exercise subrogation rights before a claim us paid?
Time lags between claims and payments means insurers often include a clause in policy wordings that they can attempt to get money back from the third party before the claim is paid.
What are the three ways in which subrogation may arise?
Tort
Contract
Statute
What is Tort?
Under common law, everyone has a common duty to act in a reasonable way towards others. A breach of this duty is called tort. Tort is when one individual is ‘wronged’ because of another’s actions.
How can subrogation arise from the breach of contracts?
Under certain contracts breach entitles the aggrieved party to compensation, regardless of fault. Insurers can assume the benefits of these rights.
How can the government exercise subrogation rights from the government?
Most insurers require that claims for riot, civil commotion and malicious damage must be notified within seven days of the event. Insurers may have right of compensation from local policing bodies etc.
What are some situations where the insurer cannot exercise subrogation rights?
Insured has no rights
The insurers right to subrogate relies on the fact that the insured has rights against a negligent third party. In circumstances where an insured has waived those rights the insurer cannot regain them.
Benefit Policies
Benefit polices do not apply when talking about the principle of indemnity. This means that they are not subject to the rules that flow from the principles of indemnity.
