What happens when a customer has two policies that cover the same incident? Both insurers will want the other to deal, and whilst on the one hand competing clauses appear to cancel each other out, a customer who has paid for two policies cannot be left in the situation where neither provides cover.
We frequently deal with cases involving dogs where the customer may be covered under legal liability policies with both their home insurer and their pet insurer. The policies must be carefully examined to see whether can be said to be superior to the other, or whether there is true parity between the policies in which case the fair approach is that the claim will be dealt with by insurers equally.
Common clauses explained
A non-contribution or “escape” clause – states that cover will not apply at all if there is any other insurance in place.
An excess of loss clause – states that cover will only apply if the indemnity available under the concurrent policy has been fully used up.
Rateable proportion clause – states that cover is provided for the proportionate risk, taking account of the cover provided by the competing insurance policy.
Which clause is superior?
The wording of each policy needs to be considered objectively, and careful policy drafting could protect against ambiguity. If there are concurrent clauses with wording of similar strength (for example if there are two similar escape clauses) then they will cancel each other out and the insurers ought to split the risk equally between them.
Watch out however for an escape clause that refers to “more specific insurance” – is a pet policy more specific than a general household policy? Can it be argued that the public liability cover for the dog in the household policy is peripheral to the provision of building and contents insurance, whereas the pet policy is directed at damage caused by a particular and, we assume, named dog?
However, if the clauses are different in nature then the superior clause may allow an insurer to escape liability. For example a “pure” escape clause is stronger than an excess of loss clause, as it definitively states that the insurer will not be on cover should any other insurance be in existence. In that situation the insurer with the escape clause should be able to pass on the risk in its entirety to the insurer with the excess of loss clause.
However, an excess of loss clause is in turn superior to a rateable proportion clause. Rateable clauses accept a proportion of the cover (up to 100%) but an excess of loss will only apply if the full indemnity of one policy is used up. In this scenario the rateable proportion clause is on risk for the entirety of the claim.
- Pet policies may contain overarching exclusions where an animal has been involved in a previous incident. Such a clause would be most unlikely to appear in a household policy and cannot be beaten.
- It makes sense for one insurer or their representative to deal with the claim, but make sure that the terms of the handling agreement are clearly recorded. Is the handling insurer/representative to report to the other at every stage, just when major decisions are taken, or even just on conclusion? Does the agreement cover all legal fees? Consider the hypothetical situation where the handling insurer did not report to the other for 4 years and the claim settled far in excess of the agreed reserve – the terms of the agreement may allow the non-handling insurer to avoid a contribution.
- Pet policies often have an excess on liability claims whereas household liability policies do not. In a case that is shared by insurers, the excess is effectively an uninsured loss under the pet policy and, it can be argued, should be covered by the household insurer even where the liability claim is shared equally.