It is trite law that an insured who has insurance from two (or more) insurers in respect of the same subject matter can claim against either of them – that insurer can usually then recover from the other insurer via an equitable right of contribution. That said, insurers generally seek to minimise the risk, or consequences of, double insurance via contractual wording. This may be achieved via wording which removes cover where there is other insurance, alternatively by wording which limits the insurer's liability to a pro rata share of the loss or which causes the insurance to operate as an excess policy. However, as the authorities show, the position is not straightforward where such wordings are in competition. In National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd  EWHC 773 (Comm) the Commercial Court considered two policies in respect of the same subject-matter and found that as a matter of construction this was not a case of double insurance. Nevertheless, in doing so it considered existing authorities in this area.
In 2007 the trustees of the Old Hall Settlement trust ("the Sellers") agreed to sell the property which was the subject matter of the trust ("the Old Hall") to joint purchasers ("the Buyers") for a price of £1.81 million. It was agreed to exchange contracts on 10 October 2007 with completion scheduled for 7 November 2007.
The HSBC policy
The Sellers were insured by HSBC in respect of the Old Hall under a policy for the period 11 December 2006 to 10 December 2007. Under "Section One – Buildings" the policy provided as follows:
Of the further conditions applicable to the whole of the insurance, Claims Condition 2 was as follows:
We will not pay any claim if any loss, damage or liability covered under this insurance is also covered wholly or in part under any other insurance except in respect of any excess beyond the amount which would have been covered under such other insurance had this insurance not been effected."
The National Farmers Union ("NFU") policy
Shortly before exchange of contracts, on 5 October 2007 the Buyers took out their own buildings insurance with NFU for the period 4 October 2007 to 4 October 2008. The NFU policy contained the following General Condition:
If, when you claim there is other insurance covering the same accident, illness, damage or liability, we will only pay our share…".
Contracts were duly exchanged on 10 October 2007, under which it was agreed that the risk of damage to or destruction of the Old Hall passed to the Buyers upon exchange. On 27 October 2007, in the period between exchange of contracts and completion (and thus at a time when The Old Hall was at the risk of the Buyers and was the subject matter of both the HSBC and NFU policies) a fire broke out at the Old Hall, causing extensive damage. The sale was subsequently completed on 21 March 2008 at the agreed purchase price and the Buyers claimed under the NFU policy in respect of the fire damage, receiving £1,850,000 in settlement of their claim. NFU subsequently sought a contribution from HSBC on the basis the risk of damage was covered by both the NFU and HSBC policies (i.e. there was double insurance). HSBC denied liability contending, first, that the Buyers were not covered by the HSBC policy and, second, that HSBC's liability was in any event limited to that of an excess insurer attaching in excess of the cover provided by the NFU policy by operation of Claims Condition 2.
Gavin Kealey QC, sitting as a Deputy High Court Judge, considered that the three preliminary issues before the Court could be refined to the following "simple question":
"upon a proper construction of the HSBC and NFU policies, does the former provide insurance cover to the Buyers in respect of the fire damage to The Old Hall which occurred on 27th October 2007, in circumstances where the latter does likewise, with the result that there was double insurance by the two policies which entitles NFU to a contribution from HSBC towards the indemnity it had paid the Buyers in respect of that damage?"
Construing the HSBC and NFU policies in light of the relevant factual background, the Judge concluded that this was not a case of double insurance and the only policy covering the Buyers in respect of the fire and damage to the Old Hall was the NFU policy. The Judge's reasoning may be summarised as follows:
- "Section One – Buildings" of the HSBC policy granted buildings cover to the Sellers, which continued for as long as the Sellers retained an insurable interest in the Old Hall. The same section also provided cover to the Buyers; however, subject to the proviso that cover would not be provided if the Buyers had themselves taken out buildings insurance in respect of the same buildings risk. This was consistent with the general purpose of providing cover to purchasers under the HSBC policy; namely to protect the Sellers against the risk of damage occurring after exchange of contracts but before completion, and in circumstances where any purchasers may otherwise be uninsured.
- The NFU policy covered the Buyers against the risk of fire damage to the Old Hall and itself contained no provision excluding cover in the event that the Buyers were otherwise insured in respect of the same risk. The only relevant provision in the NFU policy was the "rateable proportion" provision, which limited NFU's liability to the Buyers to its pro rata share of the loss if, at the time of the claim, any other insurance covering the same risk was in effect. As the proviso in the HSBC policy was triggered by the existence of the NFU policy, and there was accordingly no "other insurance" within the scope of the "rateable proportion" provision.
- The proviso in the HSBC policy was not qualified by Claims Condition 2. Whereas Claims Condition 2 was of general application, the proviso in "Section One – Buildings" was a special clause which specifically qualified the extension of cover to any purchaser of the Old Hall. The proviso took precedence over the general Claims Condition 2.
After deciding the preliminary issues in HSBC's favour on the above basis, the Judge reviewed the authorities dealing with double insurance situations on which NFU relied. In so doing, he noted:
- This case was not equivalent to Weddell v Road Transport and General Insurance Company Limited  2 K.B. 563, where concurrent policies included "escape" provisions (as they are labelled in the US) which purported to exclude an indemnity altogether in the event of other insurance. In that case the Court held that the two exclusions cancelled one another out, with liability shared between insurers.
- Neither was it comparable to Gale v Motor Union Insurance Company  1 K.B. 359, where concurrent policies included both "escape" and "rateable proportion" provisions. In that case the Court held that the "rateable proportion" provisions operated to qualify the "escape" provisions, such that the "escape" provisions applied only if there was another policy providing a complete indemnity to the insured.
- Finally, this case was distinguishable from Austin v Zurich General Accident & Liability Insurance Company Limited (1944) 77 Lloyd's List Law Reports 409, where each policy contained an "escape" provision along with respectively a "rateable proportion" and an "excess" provision (a clause equivalent to Claims Condition 2 of the HSBC policy providing that, in the event of other insurance, the subject policy only responded if and when the insured loss exceeded the amount of coverage recoverable under the other policy). In that case the Court equated the "rateable proportion" and "excess" provisions, with the result that liability was shared rateably between insurers; however, the Judge here commented that he considered such outcome was inconsistent with authority and that, as a matter of construction, the "excess" provision superseded the "rateable proportion" provision.
Difficulties generally arise with double insurance when insurers alter the basic position by including in their wordings terms such as "escape", "rateable proportion" and "excess" provisions. As the Judge's approach in this case confirms, where two policies are taken out in respect of the same subject matter, it is a matter of construction whether one or both policies respond and in what manner.
Whether such terms are apt to vary or exclude the right of contribution will depend (subject to any other applicable policy terms) on their interaction with equivalent provisions in the corresponding policy. As in this case, it may be that only one policy contains an "escape" provision excluding cover where there is other insurance, in which event insurers will not be liable to contribute as no double insurance exists. Where, however, both policies contain equivalent "escape" provisions, they will operate to cancel one another out (Weddell v Road Transport and General Insurance Company Limited).
Although only obiter dicta, the Judge's comments on the construction of competing "excess" and "rateable proportion" provisions are important. Consistent with the Judge's view on construction, one would expect the former to "trump" the latter in the sense of no double insurance existing; however this is contrary to established authority (Gale v Motor Union Insurance Company). It looks like this is an issue which will need to be finally resolved in a future case, along with the construction of corresponding "excess" provisions, although the outcome in this instance is likely to be the same as for competing "escape" provisions (namely, that they cancel one another out).