Subrogation & Contribution Flashcards
What are sometimes described as the two corollaries of indemnity?
Subrogation & Contribution
i.e they support it
What insirance contracts do subrogation & Contribution apply automatically to?
Indemnity
What is the main purpose of subrogation?
To prevent the insured from recovering for the same loss twice and so to preserve the principle of indemnity
What are the two ways in which subrogation can operate?
Insurer pays insured and steps into their shoes to bring an action against a 3rd party
If the PH has claimed for the same loss twice, must hand money over to the insurer
How does subrogation work when the insured has been recovered twice for the same loss?
The insured must be indemnified
Only accountable to insurer if indemnified
Insured is not fully indemnified if he paid an xs
Gifts cannot be claimed by insurer
How does subrogation work when the insurer is bringing a claim against a 3rd party?
Insurers step into shoes of insured to persue action
Normally action is against 3rd party who caused the loss
Action must be in name of insured (except in riot actions)
Insurer must claim for whole loss
If the recovery is equal to the loss, how is the money shared between insurer and PH?
No problem as entire loss will be covered by 3rd party
If the recovery is more than the loss, how is the money shared?
Insured is entitled to extra
If the recovery is less than the loss, how is the money shared?
Insurer can keep recovery as long as they have already indemnified the PH
How do subrogation rights arise? (3)
In Tort (negligence normally)
In contract
In statute
How do subrogation rights arise through a contract?
If the insured has an alternative contractual right to recovery, this is passed to the insurer
How do subrogation rights arise in statute?
Right to claim for property damage after a riot from the Police Authority
Whats the difference between subrogation and abandonment?
Subrogation =
Right to pursue a claim
Action cannot be in the name of the insurer
Insurer cannot recover more than amount paid
Happens automatically
Abandonment = Right over subject matter only Insurer becomes owner of goods Can make a profit Needs to be accepted by insurer
When are subrogation rights denied or modified?
Market agreements e.g. knock for knock/Immobile property agreements
Contractual waiver of subrogation (clause, no sub against affiliated companies)
Co insurance
Public policy
What is the main aim of Contribution?
To prevent the PH making a profit from his loss through double insurance
What are the common law rules for the rise of Contribution? (5)
Each policy is liable for the loss
Each insures the same interest in the subject matter
Two or more policies of indemnity exist
Each insured the subject matter of the loss
Each insures the peril
Will different interests in the same property amount to contribution? E.g landlord and tenant?
No as no overlap in interest
What do the common law rules in relation to Contribution mean for the PH?
Can claim from either policy
This insurer bears all the costs and work to settle the claim + is responsible for pursuing contribution
Insurers dont like this so often include a clause to set out how claims will be met if covered by another insurer too = a contribution condition
What are the diff types of contribution clauses? (4)
Escape clause - insured cannot take out a second insurance without the insurers permission, the insurance will be void if they do.
‘Other‘ clause - can state that no liability will be accepted if there is ‘another’ insurance
‘More specific insurance’ clause - payment will only be made if more specific insurance is exhausted
Ratable proportion clause - included in most indemnity contracts. Insurer is only liable for a rateable portion of the claim
How to calculate the ratio of contribution under the maximum liability method
Loss shared in proportion to the max amount of cover on each policy
A’s Sum Insured = £10k
B’s Sum Insured = £20k
Loss is £6k
A’s Proportion = 10,000/30,000 x 6,000
= £2,000
B’s proportion = 20,000/30,000 x 6,000
= £4,000
How to calculate the ratio of contribution under the independant liability method
Each insurers liability is assessed as though the policy is the only one in force
A’s Sum Insured = £10k
B’s Sum Insured = £20k
Loss = £15k
Step 1. Calculate A’s independant liability = £10,000
Step 2. Calculate B’s independant liability = £15,000
Step 3. The loss is shared according to the two independant liabilities. Each liability divided by the sum of independant liability multiplied by the loss i.e.
A pays 10,000/25,000 x 15,000 = £6,000
B pays 15,000/25,000 x 15,000 = £9,000
How to calculate the ratio of contribution under the independant liability method if one policy has an excess
A’s Sum Insured = £10k (£2k excess)
B’s Sum Insured = £20k
Loss = £6k
Step 1. Calculate A’s independant liability = £4,000 (6k - 2k xs)
Step 2. Calculate B’s independant liability = £6,000
Step 3. The loss is shared according to the two independant liabilities. Each independant liability divided by the sum of the independant liabilities multiplied by the loss i.e.
A pays 4,000/10,000 x 6,000 = £2,400
B pays 6,000/10,000 x 6,000 = £3,600
What method does a property insurance policy that is not subject to an average clause use?
Maximum liability method
What method is used to calculate the basis of contribution in liabilty cases?
It is assessed by independant liability - requirement in law
