Whilst renewing my car insurance policy recently I noticed that although it had started out three years ago as offering standard fully comprehensive cover, it had since acquired several add-ons. These included personal accident cover, motor legal protection and roadside breakdown cover. The policy renewal details pointed out that there may be similar cover elsewhere, that policy benefits may overlap and that I should check how this might affect me. It was simple enough to check there was indeed an overlap of cover with other policies. Establishing the effect of this was less straightforward.
Generally, where the same insured insures against the same risk for the same interest in the same subject matter with two or more independent insurers then double insurance will occur. There is nothing to stop anyone insuring with as many insurers as they like and up to their full interest with each. In the event of a claim the insured can choose which insurer to claim against. The only restriction is that any recovery cannot be for more than the full loss. It is up to the insurer who meets the claim to seek contribution from the other insurers. Accordingly, most insurers include policy conditions requiring an insured to notify them of the existence of any other insurance and, further, in the event of other insurances responding to the claim, they will only be liable to pay a proportion of the loss.
Does this mean that I had been in breach of policy conditions by failing to notify insurers of duplication of cover? Was there a risk that instead of there being ample cover there was under insurance or even none at all?
The Law Commissions of England and Scotland anticipated such a situation in their 2009 joint report on pre-contract disclosure and misrepresentation in consumer insurance. The right of contribution between insurers does not depend on the terms of insurance contracts. Rather, it is an equitable right, in that an insurer who has taken a premium should share in the payment of the claim. The Scots analysis is that such a situation leads to unjustified enrichment of the insurer who does not contribute to settlement of a claim. The consumer should not be penalised for taking out an unnecessary policy nor should they be left to approach multiple insurers to establish how each is prepared to contribute to a loss.
Consumers are free to acquire insurance covers safe in the knowledge that in so doing they are not in breach of policy terms and conditions. It is insurers rather than consumers that are affected by overlapping policy covers.