Chapter 8 - Contribution and subrogation Flashcards
Can an insured recover more than the amount of the loss sustained if they have two policies?
No can only recover the total amount lost, regardless of how many policies are in place.
What is contribution?
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.
Does contribution exist in a policy even if it is not stated?
Yes, as it supports the principle of indemnity
What do Insurers do to ensure contribution occurs from the outset?
Insurers customarily include a contribution condition in the policy
What must be common to all policies for contribution to apply?
Insurable interest, peril and subject -matter
extended (but not necessary):
each policy must be liable and neither policy can contain a non-contribution clause
What is rateable proportion and how is it determined?
The share of a claim that an insurer pays where two or more insurers cover the same risk, usually in proportion to respective SI.
- By sum insured: Apportioning it in line with the sum insured. (Is used if policy is not subject to average)
- By independent liability - calculates amount payable under each policy and then shared in proportion to the independent liabilities of the policy. so, (policy sum insured divided by total value at risk) multiplied by the loss. For policies subject to average.
How can contribution be modified?
- Non-contribution clause - applied to the policy
- More specific insurance clauses - restricts cover where more specific insurance is arranged e.g. jewellery in a household policy.
- Market agreements - insurers are party to agreements with overlapping cover e.g. ABI agreement for overlapping cover with travel, all risks, person affects and household.
What are the benefits if the principle of contribution is modified for insurer and insured?
can be cheaper for insured as claims agreements are in force and for insurer cheaper admin and avoidance of litigation
What is the definition of subrogation?
The right of an insurer, following payment of a claim, 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.
Why do insurers include a clause giving them the power to pursue subrogation rights before the claim is paid?
To ensure they are not prejudiced by delay or other action taken by the insured
What are the 3 insurers’ subrogation rights? And explain what they mean
- A tort - where an insurer assumes rights of insured in attempt to recover a loss from the wrongdoer.
- Contract - where a breach entitles aggrieved party to compensation, regardless of fault. Insurers can assume this right
- Statue - when insurers have the right of recovery against local policing bodies following civil unrest (riots). Under Riot Compensation Act 2016
Explain what is meant by a tort
Under common law, everyone has a duty to act reasonably toward others and if this is breached, it is called a tort.
What is meant by a salvage value?
Where an insurer pays a total loss settlement (subject matter is beyond economic repair - normally when exceeds 60% of market value), the value left of the subject matter is called the salvage value and the insurer is entitled to the benefit.
How do rights of salvage differ from subrogation?
If a salvage is sold and the value is greater than originally assumed, no obligation of the insurer to pass on the profits to the insured, as they own it. (insured given the right to buy the salvage for return of some of the claim)
Are there any agreements to reduce insurers corresponding and admin cost in the operation of subrogation?
Yes - the ABI Memorandum of Understanding for Subrogated Motor Claims. Has 4 key elements:
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