Insurance Law-Contribution

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14. Contribution
If two insurers insure against the same risk, who pays? Neither can refuse to pay. What problems arise between insured and insurer? Or insurer and insurer Can an insurer expressly exclude or limit his contractual liability when there is another insurance policy in existence? Or where there is double insurance?  What is its impact?  How about a rateable contribution clause? What if one insurer has such a clause? On whom does the liability fall? Such clauses do affect insured’s contractual obligations Is equality always equity?  Other policies may have different considerations  Note s 80 MIA does not say equality. It says proportionately according to how much is insured for/premium  See Commercial v Hayden

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If an insured breaches one policy, does that affect his insurer’s liability to contribute? Can he refuse? Turns on when liability for contribution is ascertained.

When is liability for contribution ascertained? Two approaches. Confusing First approach is at the time of loss  See Weddell  Thus a subsequent breach after the time of loss does not affect the insurer’s liability to contribute. See both Drake cases Second approach: Insurer’s liability to contribute was based on the insurer’s contractual liability.  An insured’s breach of the policy may relieve the insurer from his contractual liability and his liability to contribute.  Thus, time of liability ascertained later than the accident.  See Eagle Star  PCC says it is unresolved as to the extent of the first insurer’s liability under a rateable provision when the second insurer has no liability. Is it 50% or 100%? Court must see. Which approach should be taken? Which approach is fairer?  PCC thinks fairest approach is the first one.

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American Surety Co. v. Wrightson [1910] 103 L.T. 663. See also s80 MIA (below) Hamilton J.: An insurer’s right to contribution was based on principles of equity. Equality was sometimes equity.

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American Surety Co. sought contribution from Lloyd’s underwriter, in respect of policies granted to the National Park Bank of New York.  American policy covered loss of funds through the dishonesty of any employee.  Lloyd’s policy covered, inter alia, loss by robbery, theft, fire and embezzlement by employees and other persons. Bank employee misappropriated a sum of $2,680 and the loss was paid by the American insurers. They claimed contribution from Lloyd’s underwriter. Issue: Quantum of contribution.

Gale v. Motor Union Insurance Co. [1928] 1 K.B. 359. Roche J.: When both insurers incorporated a rateable contribution provision, each insurer was liable for half the loss. Plaintiff’s car policy covered an authorised driver provided he was not “insured under any other policy”, otherwise insurer was liable for a rateable proportion of any loss. Plaintiff permitted a Mr. Loyst to drive the car. Driver’s policy had terms similar to owner’s policy. Driver became liable to a third party. Both insurers denied liability on the ground that the driver was covered by another insurer at the time of the accident. 

Weddell v. Road Transport & General Insurance Co. [1932] 2 K.B. 563. Rowlatt J.: When only one policy had a a rateable contribution provision, the insurer with the provision was liable for half the loss. Plaintiff drove his brother’s car. Car was involved in an accident and a third party was injured.  Driver’s insurers disclaimed liability: Driver failed to notify insurers. Policy covered insured: provided he was not entitled to an indemnity from another insurer.  Owner’s policy contained a rateable contribution provision. Arbitrator awarded plaintiff 50% of the loss in view of the rateable contribution provision. Driver: Rateable contribution provision did not operate because the driver could not claim against his own insurers.  ASK: How to justify this when both insurers (owner’s and driver’s) had insured the same risk? At what point did Court fix the liability?  At the time of the accident or after? If it is the former, there are actually two insurers around. If it is the latter, only one insurer is around. Driver’s insurer out of the picture because the driver gave no notice.  So it must have been the former.

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Legal & General Assurance Society Ltd. v. Drake Insurance Co. Ltd. [1991] 2 Lloyd's Rep. 36. English Court of Appeal: When a policy contained a rateable contribution clause, the insurer had no right of contribution unless he paid more than his own share of the liability.  Insurer’s liability to contribute was ascertained at the time of loss. Legal & General Assurance insured a car belonging to a Mr. Arora from August 13, 1975, to August 12, 1976. In June 1976, Arora took out a second policy with Drake Insurance for the month of June.

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 Both policies contained similar rateable contribution clause.  Drake policy required insured to give immediate notice of claim. On June 14, a pedestrian was injured. Legal paid £65,000 and sought contribution from Drake. Drake: Insured failed to notify them of the claim.  Legal has no right of contribution as the rateable clause did not require them to pay more. 

Eagle Star Insurance Co. Ltd. v. Provincial Insurance Plc. [1993] 2 Lloyd's Rep. 143. Privy Council: Liability to contribute was dependent on an insurer’s contractual liability to policyholder. Liability to contribute would not arise if the insurer was not contractually liable to the policyholder. A third party was injured in the Bahamas by a car driven by a Mr. O’Reilly. Car was on loan from his car repairers.  Both O’Reilly and the repairers had their own insurers.  Third party obtained a judgment against both insurers. Driver’s insurers claimed it had cancelled the policy before the accident. Repairers’ insurers contended that it was entitled to a 50% contribution from the driver’s insurers. Repairers’ Insurers: O’Reilly failed to give notice of the accident and this entitled them to repudiate liability.  This means that they fix liability at a subsequent time!  But in this case, UKPC said both must pay because insurance was compulsory! Weird  Both had said they were not liable.

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Monksfield v. Vehicle and General Insurance Co. Ltd. [1971] 1 Lloyd's Rep. 139. Judge Graham Rogers: Liability to contribute was dependent on an insurer’s contractual liability to a policyholder. No duty arose if the insurer was not liable owing to an insured’s breach of the policy. A Mr. Plater’s policy covered him when he drove another car provided he was not entitled to an indemnity under any other policy. Plater drove a car belonging to Mr. Web and was involved in an accident with another vehicle. Car owner’s policy covered authorised driver provided he was not entitled to an indemnity under any other policy. Claim was settled by driver’s insurers. Driver’s Insurers claimed contribution from Owner’s Insurers. Owner’s Insurers: Plater failed to give notice and this absolved them from liability.  Ask: Is this fair to other insurers?

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Commercial Union Assurance Co. Ltd. v. Hayden [1977] 1 Q.B. 804. English Court of Appeal: In public liability insurance, all insurers should contribute equally if the loss did not exceed the policy limit in any of the policies. Commercial Union Assurance and Lloyd’s underwriter, Hayden, issued public liability policies to the same insured. Commercial Union policy: Maximum limit of £100,000. Hayden policy: Limit of £10,000.  But amazingly, premiums the same.

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Both policies incorporated a rateable contribution clause. A claim for £4,425 was settled by Commercial Union and they claimed a 50% contribution from Hayden. Commercial Union: Their right of contribution was grounded on the “independent liability” principle.   This means that each insurer’s liability is ascertained independently without reference to the other insurer  If both liable, each shares equally if the loss is below policy limit. This was accepted.  Normally applied in public liability policies because normally it is a standard premium. Hayden: The correct principle to be applied was the “maximum liability” principle. 

Nanyang Insurance Co. Ltd. v. Commercial Union Assurance Co. Plc. [1996] 2 S.L.R. 372. Warren L.H. Khoo J.: There was no double insurance when one insurer expressly excluded his liability towards a policyholder for a loss which took place. Contractors were insured under two public liability policies issued by Nanyang Insurance and Commercial Union. Contractors damaged certain underground cables and third party claim was settled by Nanyang for $63,023.28. Nanyang claimed contribution from Commercial Union whose policy stated that it was liable for any excess beyond the amount which would be payable under such other indemnity or insurance. Commercial Union: It was not on risk at the time of the accident and as such it was not liable to contribute. 

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Drake Insurance Plc. v. Provident Insurance Plc. [2004] 2 W.L.R. 531 English Court of Appeal: Presence of a rateable proportion clause would not preclude an insurer who settled a claim from seeking contribution from the other insurers. Provident Insurance (“Provident”) insured a Dr. Singh. His wife was insured with Drake Insurance. Wife injured a third party while driving her husband’s car. Dispute between Dr. Singh and Provident went to arbitration and it was decided that Provident was entitled to avoid the policy for non-disclosure. Third party liability settled by Drake indicating that it disagreed with Provident’s decision to avoid liability. Both policies incorporated a rateable proportion clause. Provident: Since the Drake policy contained a rateable proportion clause, the contribution sought by Drake was in respect of a voluntary payment. Ask: What’s the difference with the other Drake case?

China Insurance Co. (Singapore) Pte. Ltd. v. Liberty Insurance Pte. Ltd. [2005] 2 S.L.R. 509. Andrew Phang Boon Leong J.C.: An insurer could not look towards another insurer for contribution unless both insurers had insured the same insured against the same risk. BT Engineering Pte Ltd (“BT”) obtained a Workmen’s Compensation – Industrial Risks Policy from the defendant and this policy was later extended to include Keppel Shipyard (“Keppel”). BT later obtained a Workmen’s Compensation Policy from the plaintiff to cover work to be done on board two vessels situated at Keppel (the FPSO Falcon and FPSO Brasil, respectively)

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after the defendant informed BT that its policy only covered industrial and not marinerelated risks and that its policy excluded risks relating to work upon vessels. AXA Affin General Insurance Bhd. v. Mitsui Sumitomo Insurance (Malaysia Bhd.) [2011] 2 C.L.J. 196. Tengku Maimun J.: To constitute double insurance, there must be two insurance policies insuring the same insured in respect of the same property against the same risk. An incidental or some overlap between two policies would not by itself constitute double insurance. Diethelm engaged Tomatrans (M) Sdn. Bhd. to transport Diethelm’s goods in the southern zones of West Malaysia.  Tomatrans had a Marine Cargo Insurance Policy with the defendant covering Tomatrans and its sub-contractors.  Arising from two incidents of theft and hijack of two lorries belonging to Tomatrans in Johor, Diethelm was indemnified by its insurers. Diethelm’s insurers claimed contribution from the defendant insurers.

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Lonpac Insurance Bhd. v. American Home Assurance Co. [2011] S.G.H.C. 257. Judith Prakash J.: Before an insurer could claim contribution from another insurer, the risk insured and the person insuring must be the same. The plaintiff (“Lonpac”) and the defendant (“AHA”) were insurance companies operating in Singapore. Both insurers issued workmen’s compensation policies to cover the liability of Rotary Engineering Ltd (“REL”) to compensate its employees for work related injuries.  Lonpac’s policy was issued annually and covered the REL group of companies in respect workmen’s compensation for work-related injuries.  AHA workmen’s compensation policy covered REL’s liability specifically and not did not cover the other companies in the Group.

S. 80 Marine Insurance Act Where the assured is over-insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract. (2) If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers, and is entitled to the like remedies as a surety who has paid more than his proportion of the debt.

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