What is double insurance?

For there to be double insurance, the following requirements must be met at the time the risk insured against materialises:

  • Insurance by, or on behalf of, the same insured;
  • Over the same interest in respect of the same risk object;
  • Under different, concurrent and not layered, insurance contracts;
  • With two or more insurers.

Double insurance is not to be confused with co-insurance arrangements or proportional reinsurance of certain risks.

Relevance to insured and insurer

Insurers often expressly require existing or potential double insurance to be disclosed to them at the time of underwriting and may impose an ongoing disclosure obligation and ask for the information if there is a claim.

Even where they do not, an insured should disclose such double insurance as it may constitute a material fact, though probably only if results in over-insurance to such a degree that there is a potential for fraud. Non-disclosure may lead to an avoidance of the policies.

Unless the policies provide otherwise, the insured can claim proportionately from each insurer, or proportionately or in full from any of them. But they can never recover more than their actual loss because this would offend the principle of indemnity.

Any insurer who has paid more than its proportionate share can recover a proportion from the other insurer(s) of the same loss through the doctrine of contribution. This doctrine can be, and often is, altered or excluded depending on the wording of the policies.

For example, some policies include a rateable proportion clause with the effect that the insured cannot claim more than the insurer’s rateable proportion from any insurer whose policy includes this clause. One or more of the policies may also state that they operate in excess of the others, or not at all in the case of double insurance. Underwriters should therefore consider how the cover is intended to operate. Claims teams should assess claims in line with such clauses. If:

  • An insurer with a rateable proportion clause in its policy pays the full extent of the insured’s loss, in the mistaken belief it was the sole insurer, it can recover the over-payment from the insured on the basis of unjustified enrichment;
  • An excess insurer pays the full extent of the insured’s loss because it was not aware of the other insurers, it should not claim a contribution from the other insurer(s) but would need to proceed by way of subrogation and enforce the insured’s rights against the other insurer(s), or recover from the insured based on unjustified enrichment. Having said that, the court in Samancor v Mutual & Federal (2005) decided – incorrectly in our view – that the excess insurer which had proceeded by way of subrogation ought to have claimed a contribution from the other insurer. Excess insurers have no contribution rights unless there is double excess insurance, in which case the excess clauses cancel each other out; and
  • A primary insurer pays the full extent of the insured’s loss, it cannot claim a contribution from the excess insurer(s). From the excess insurer’s perspective, no payment is required as the entire claim is covered by the primary insurer.

While double insurance is often incorrectly associated with over-insurance, there is also the possibility that there is under-insurance despite double insurance. The amount the insured can recover will then also be affected by the average clauses which the policies will usually contain.

Disputes often arise about the calculation of rateable proportions, because of how, and for how much, the risks are insured and because there isn’t much legal precedent on the issue (at least not in South Africa). The most favoured approach is called the independent liability approach, in terms of which insurers are liable in proportion to the amounts each would be liable for individually.

For more on double insurance, refer to our previous blogs on the position in Australia here and the US here and here.