Chapter 8 Contribution and subrogation

Question 1

What is the definition of the principle of contribution?

Answer 1

“ The right of an insurer who has paid under a policy to call upon others similarly but not necessarily equally liable to the same insured to contribute to the payment”

Question 2

If a policyholder had two life policies would contribution apply?

Answer 2

No, as life policies are benefit policies

Question 3

Identify two ways the principle of contribution is modified.

Answer 3

1. Policies contain non-contribution conditions

2. There are market agreements between insurers where they agree not to seek contribution in certain instances

Question 4

Identify five aspects that must be common to both policies for contribution to apply.

Answer 4

P eril (cover same peril)
I ndemnity (both policies of indemnity)
I nsurable Interest (cover same insurable interest)
L iable (both policies liable for loss)
S ubject matter (both policies cover same subject matter of insurance
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Question 5

What does a rateable proportion contribution condition state

Answer 5

That the policy will only pay their proportion of the loss

Question 6

What does a non-contribution clause state?

Answer 6

That the policy will not contribute to a loss if it is covered under another policy

Question 7

If both policies contain a non contribution clause what happens?

Answer 7

The loss is shared proportionately.

Question 8

If one policy has a non-contribution condition and one a rateable proportion condition what happens?

Answer 8

The insurer with the rateable proportion condition will pay the whole of the claim as they have the weaker clause

Question 9

What does the specific insurance condition state?

Answer 9

That insurers will not contribute to a loss if the loss is more specifically insured?

Question 10

Identify two market agreements on contribution

Answer 10

Claims under driving other cars extension - vehicle insurers do not seek contribution from driver’s insurers
Travel and household

Question 11

Identify two reasons insurers have market agreements on contribution

Answer 11

Save cost

Reduce disputes

Question 12

Define “subrogation”

Answer 12

“the right of one person, having indemnified another under a legal obligation to do so, to stand in the place of that other and avail himself of all the rights and remedies of that other, whether already enforced or not”

Question 13

What are the two method for sharing losses between policies under the principle of contribution

Answer 13

Sum insured method

Independent liability method

Question 14

How does the sum insured method operate?

Answer 14

Insurer A pays Loss multipled by Sum Insured of Insurer A divided by total sum insured of Insurer A and B

Question 15

When is the sum insured method used?

Answer 15

On property claims where the policies are not subject to average.

Question 16

How does the independent liability method work

Answer 16

Loss shared in proportion to liabilities of each insurer if the other had not been paying the loss

Question 17

When is the independent liability method used?

Answer 17

On property policies where the policies are subject to average. On all liability claims.

Question 18

Identify three ways that subrogation rights may arise.

Answer 18

In tort eg negligence
In contract
Under statute e.g. Riot Damages Amendment Regulations (2007)

Question 19

In the unlikely event that an insurer recovers more after subrogating than they paid out to the insured who benefits from the over recovery?

Answer 19

The insured

Question 20

In the event that an insurer recovers £9,000 after paying out £8,500 excess of a deductible of £1,000 who does not recover in full the insurer of the insured?

Answer 20

The insured. The insurer benefits first £8,500 the balance is paid to the insured so they are not indemnified for £500 of their deductible.

Question 21

What do we mean by salvage

Answer 21

If an insured pays a total loss to the insured they are entitled to retain what is left of the item insured eg written off car

Question 22

Identify two market agreements on subrogation

Answer 22

ABI Memorandum of understanding – subrogated motor claims

Immobile property agreement

Question 23

Identify four ways subrogation rights may be precluded.

Answer 23

The Insured has no right
The policy is a benefit policy
Insured has given another party a subrogation waiver
Negligent fellow employees - insurers do not subrogate against