IF1.8 Contribution and Subrogation

Question 1

define Contribution

Answer 1

The right of an insurer to call upon others who are similarly liable to the same insured to share the cost of an indemnity payment.

Question 2

What must neither policy contain for contribution to occur?

Answer 2

a non-contribution clause

Question 3

What must both policies contain for a contribution clause to hold?

Answer 3

• common insurable interest
• common insured peril which gives rise to the loss
• common subject matter
• both liable for the loss

Question 4

define rateable proportion

Answer 4

the share of any claim that an insurer pays when two or more insurers cover the same loss

Question 5

define independent liability

Answer 5

each insurer is independently liable for the loss

Question 6

Amount payable by each insurer =
(independent liabilities)

Answer 6

policy sum insured / total value of risk x loss

Question 7

When is the sum insured rateable proportion method used for contribution?

Answer 7

property policies not subject to average & which have identical subject matter

Question 8

When is the independent liability rateable proportion method used for contribution?

Answer 8

property policies that are subject to average or where an individual loss limit applies within the sum insured

Question 9

When is the principle of contribution modified?

Answer 9

1. non-contribution clause may be added
2. more specific insurance clauses are added (if you have specific insurance, this will cover the loss instead of the general insurance)
3. market agreements (the insurer will not insist on contribution is the sum is modest)

Question 10

2 non-contribution clauses…

Answer 10

cancel each other out

Question 11

Define subrogation

Answer 11

The right of the insurer (after paying the claim) to take over the insureds rights to recover payment from a third party responsible for the loss

Question 12

What is an excess amount is recovered from subrogation (compared to the claim payment)?

Answer 12

The insurer must pay the excess to the insured

Question 13

What can subrogation rights arise from?

Answer 13

1. statues
2. contracts
3. tort

Question 14

When can insurers pursue recovery?

Answer 14

from notification of the claim (they can’t make recovery until they have paid the insured)

Question 15

What type of payment can and can’t apply for subrogation?

Answer 15

indemnity
NOT benefit

Question 16

Define salvage

Answer 16

The value of the remaining property once the insured has been paid out

Question 17

Who does the salvage belong to?

Answer 17

The insurer

Question 18

In the case of the insured requesting to keep the salvage, how much can the insurer pursue in subrogation?

Answer 18

The total amount paid out e.g. the total amount - the price of the salvage.

Question 19

If stolen property is returned then…

Answer 19

The insured may swap their money for the item OTHERWISE the insurer keeps the property as salvage and may keep any profits from selling on

Question 20

ABIs memorandum of understanding principles

Answer 20

1. consistency of practise
2. subrogated claims should represent net cost
3. supporting evidence should be volunteered
4. legal costs should be avoided

Question 21

When can insurers be barred from subrogation?

Answer 21

1. the insured has no subrogation rights
2. the policy is a benefit policy
3. The insurer has waived their subrogation rights
4. The insurer agrees not to pursue recovery in line with market practise
5. from negligent fellow workers

Question 22

Define Tort

Answer 22

A breach of duty to act in a reasonable way towards others

Question 23

What does rateable proportion mean?

Answer 23

both insurers pay proportionately depending on their sum insured

Question 24

What must happen for contribution to apply

Answer 24

• two or more policies must exist
• policies must cover a common insurable interest
• policies must cover a common peril which gives rise to the loss
• policies must cover common subject-matter
• policies must be liable for the loss
• neither policy must cause a non-contribution clause

Question 25

When does contribution and subrogation overlap

Answer 25

when one insurer claims back a proportion from another insurer due to a dual insurance

Question 26

Amount payable by each insurer =
(sums insured)

Answer 26

policy sum insured / total sum insured for all policies x loss

Question 27

with contribution there is no requirement for the policies to be…

Answer 27

identical

Question 28

Examples of when contribution doesn’t apply

Answer 28

1. non-contribution clause
2. If a specific insurance clause is taken out (this will cover all of the loss)
3. contribution doesn’t apply when ‘driving other cars’
4. for modest claims under approx £250

Question 29

Another word for tort

Answer 29

negligence

Question 30

Example of subrogation right arising from tort

Answer 30

car accident which wasn’t your fault (you can pursue money from the third part)

Question 31

Example of subrogation rights arising from contract

Answer 31

A tenant causing damages which are claimed on the landlords insurance

Question 32

Example of Statutes

Answer 32

specifically for riots

Question 33

Riot compensation Act 2016 (RCA)

Answer 33

insurers have rights to pursue compensation against local policing bodies for riot damage up to 42 days after the event

Question 34

Hold of harmless clause

Answer 34

prevents the insured from pursuing recovery rights (and hence stops the insurer pursuing)

Question 35

What type of policy must be in place for contribution

Answer 35

indemnity NOT BENEFIT

Question 36

Subrogation case

Answer 36

Castellain v. Preston

Question 37

According to the FOS (salvage)

Answer 37

the insured always should be given the choice to retain salvage (but will have return some of their claims payment)

Question 38

ABI memorandum of understanding (subrogated motor claims)

Answer 38

sets of principles for subrogated motor claims to avoid disputes and reduce costs