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    Future Focus 2015 Contribution: Executive Director Malcolm Hyde BSC (Hons) Dip FR Fcii Fcila Fifaa

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    Contribution refers to the principle under marine insurance law where multiple insurance policies cover the same risk. When a loss occurs, insurers must contribute to payment of the claim in proportion to the amounts of their policies. There are two main methods for apportioning losses between insurers - the maximum liability method and independent liability basis. The maximum liability method shares losses according to the proportion of each insurer's policy limit to the total limits. The independent liability basis assesses what each insurer would pay if it was the only policy, then shares losses according to those proportions. Contribution ensures losses are shared fairly between insurers covering the same risk.

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    Future Focus 2015 Contribution: Executive Director Malcolm Hyde BSC (Hons) Dip FR Fcii Fcila Fifaa

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    Contribution refers to the principle under marine insurance law where multiple insurance policies cover the same risk. When a loss occurs, insurers must contribute to payment of the claim in proportion to the amounts of their policies. There are two main methods for apportioning losses between insurers - the maximum liability method and independent liability basis. The maximum liability method shares losses according to the proportion of each insurer's policy limit to the total limits. The independent liability basis assesses what each insurer would pay if it was the only policy, then shares losses according to those proportions. Contribution ensures losses are shared fairly between insurers covering the same risk.

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    Contribution refers to the principle under marine insurance law where multiple insurance policies cover the same risk. When a loss occurs, insurers must contribute to payment of the claim in proportion to the amounts of their policies. There are two main methods for apportioning losses between insurers - the maximum liability method and independent liability basis. The maximum liability method shares losses according to the proportion of each insurer's policy limit to the total limits. The independent liability basis assesses what each insurer would pay if it was the only policy, then shares losses according to those proportions. Contribution ensures losses are shared fairly between insurers covering the same risk.

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    © All Rights Reserved
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    Download as pdf or txt
    47 views16 pages

    Future Focus 2015 Contribution: Executive Director Malcolm Hyde BSC (Hons) Dip FR Fcii Fcila Fifaa

    Uploaded by

    yashtilva00000
    Contribution refers to the principle under marine insurance law where multiple insurance policies cover the same risk. When a loss occurs, insurers must contribute to payment of the claim in proportion to the amounts of their policies. There are two main methods for apportioning losses between insurers - the maximum liability method and independent liability basis. The maximum liability method shares losses according to the proportion of each insurer's policy limit to the total limits. The independent liability basis assesses what each insurer would pay if it was the only policy, then shares losses according to those proportions. Contribution ensures losses are shared fairly between insurers covering the same risk.

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    Future Focus 2015

    Contribution
    Executive Director Malcolm Hyde
    BSc (Hons) Dip Fr FCII FCILA FIFAA
    What we will be exploring
    • Definition of Contribution
    • Case law and statute law
    • Understand why it is important
    • Methods of apportioning the loss
    • Certificate, C1 and C2 questions
    • What answers should include
    Contribution is:
    • Marine Insurance Act 1906 Section 32 – Double Insurance
    (1) “Where two or more policies are effected by or on behalf of the
    assured on the same adventure and interest or any part thereof,
    and the sums insured exceed the indemnity allowed by this Act,
    the assured is said to be over-insured by double insurance.”

    • Marine Insurance Act 1906 Section 32 – Double Insurance


    (2)(a) “The assured, unless the policy otherwise provides, may
    claim payment from the insurers in such order as he may
    think fit…”
    Contribution is:
    Marine Insurance Act 1906 Section 32 – Double Insurance
    (2)(b)“Where the policy under which the assured claims is a valued
    policy, the assured must give credit as against the valuation for
    any sum received by him under any other policy without regard
    to the actual value of the subject-matter insured.”

    Marine Insurance Act 1906 Section 32 – Double Insurance


    (2)(c)“Where the policy under which the assured claims is an unvalued
    policy he must give credit, as against the full insurable value, for
    any sum received by him under any other policy”.
    Contribution is:
    • Marine Insurance Act 1906 Section 32 – Double Insurance
    (2)(d)“Where the assured receives any sum in excess of the
    indemnity allowed by this Act, he is deemed to hold such sum
    in trust for the insurers, according to their right of contribution
    among themselves.”

    • Requirements for Contribution


    1. The same subject matter
    2. The same interest
    3. The same peril/risk
    Same interest
    • North British & Mercantile Insurance Co v London Liverpool and
    Globe Insurance Co (1877)

    • Where the interest was not the same (in this case owner and Bailee)
    Contribution did not arise…
    • No Cover? (Insurers modify the position)

    • Weddell v Road Traffic and General Insurance Co (1932)

    • Two policies both excluding liability if another existed – held that both
    policies were liable
    Rateable proportion
    Legal and General v Drake Insurance Co 1992
    • No right of recovery where whole claim paid despite rateable proportion
    clause.

    Drake v Provident Insurance Plc 2004


    • There was a right of recovery – seemingly because the first insurer paid
    under protest
    Methods of apportionment

    A. Maximum liability method


    B. Independent liability basis

    Which method to use?


    A. Average does not apply use Maximum liability basis
    B. Average does apply use Independent liability basis
    Maximum Liability Method
    Shared by the Insurers in proportion to the total of all actual liabilities

    Insurer A Sum Insured £10,000


    Insurer B Sum Insured £20,000
    Loss £6,000

    Insurer A pays
    £10,000 x £6000 = £2,000
    £30,000

    Insurer B pays
    £20,000 x £6,000 = £4,000
    £30,000
    Independent Liability Method
    • Assess the liability for each Insurer as though its
    policy was the only one in force

    • The figure which results in each case represents the


    independent liability of the Insurer for the loss

    • The loss is then shared in proportion to the


    independent liabilities of the Insurers
    Example
    Policy A Sum Insured £10,000
    Policy B Sum Insured £20,000
    Loss £15,000
    (Not subject to average)

    Step 1 calculate the independent liability of Policy A


    This is £10,000

    Step 2 calculate independent liability of policy B


    This is £15,000

    Step 3 the loss is shared in proportion to the two independent liabilities


    A pays £10,000 x £15,000 = £6,000
    £ 25,000

    B pays £15,000 x £15,000 -= £9,000


    £25,000
    Independent Liability Method

    • Policy A Sum Insured £10,000

    • Policy B Sum Insured £15,000

    • Full Value Sum Insured £20,000

    • Loss £5,000
    Certificate
    Contribution is:
    • An interim payment to share the burden of the loss
    • The right to seek a recovery to share the loss
    • The excess paid by the policyholder to share the loss
    • Where Insurers share a loss they both cover
    C1
    • Provide the definition of Contribution,
    explain the principle providing statute and
    case law as appropriate.

    • Group work
    C2
    Frank Zappa insures his musical instruments against the risk of Fire with
    RT Insurance Company. The policy is in force from 1st Jan 2015 to 31st
    Dec 2015 He also takes out an “All Risk” policy with AD Insurance
    Company covering the same goods with cover effective from 1st March
    2015 to 29th February 2016. Average applies to both policies.
    On the 1st September his Fender American Standard Strat HSS
    Shawbucker, RW, 3-Color Sunburst guitar is damaged by fire. The total
    value of the guitar and agreed loss is £1,200.
    Frank realises he is insured twice and as the Loss Adjuster you are
    handling the claim. Explain the legal considerations that arise with regard
    to the double insurance and explain the basis upon which you should settle
    the claim. Detail how the position would be different if the loss took place
    on 2nd Jan 2016 and was for damage as the guitar had been dropped.
    Future Focus 2015
    Contribution
    Executive Director Malcolm Hyde
    BSc (Hons) Dip Fr FCII FCILA FIFAA

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