It is well known that an insured who has insurance from two (or more) insurers in respect of the same subject matter can claim against either of them and that the insurer usually then recovers from the other insurer via an equitable right of contribution. Most insurers seek to minimise the risk, or the consequences of, double insurance via contractual wording, such as wording which removes cover where there is other insurance in place.
However, the position is not straightforward where such wording is in competition. In the recent case of National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Limited  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. Whilst the case itself revolved around the rights of an insurer to recover a contribution from another insurer where the risk concerned was covered by both insurers, this is of interest to the real estate insurance industry since double insurance on sales/purchases in the period between exchange and completion is standard practice.
The seller and the buyer exchanged contracts for the sale of a property for £1.81 million on 10 October 2007 with completion scheduled for 7 November 2007. The contract provided that the risk of damage or destruction to the property passed to the buyer on exchange of contracts and shortly before exchange the buyer took out insurance with NFU. As the seller retained an insurable interest in the property it maintained its existing policy with HSBC.
The HSBC policy stated that anyone buying the property would benefit from the insurance until the sale completed but that the insurers would not pay any claim if any loss or damage were covered under any other insurance. The NFU policy contained a condition that it would only be liable for a rateable proportion if there were other insurance covering the same damage.
In the period between exchange and completion a fire caused extensive damage at the property. A notice to complete was served by the seller and the buyer duly completed the purchase at the agreed price.
As the seller received the full purchase price it did not claim under its HSBC policy. The buyer claimed under its NFU policy and received £1.85 million in settlement of its claim. NFU subsequently sought a contribution from HSBC on the basis the risk of damage was covered by both the HSBC and NFU policies. HSBC denied liability, arguing principally that the buyer was not covered by the HSBC policy.
The court was asked to determine the preliminary issue of whether the HSBC and NFU policies both covered the buyer, with the result that there was double insurance and entitling NFU to a contribution from HSBC.
The court held that this was not a case of double insurance and the only policy covering the buyer was the NFU policy. NFU was not entitled to a contribution from HSBC and accordingly was liable for the full extent of the damage.
The issue was whether both policies imposed a liability to indemnify the buyer in respect of the fire damage or whether either policy limited or excluded such liability. The purpose of the HSBC policy was to provide cover to purchasers and therefore protect the seller against the risk of damage occurring in the period between exchange and completion in circumstances where the purchaser may otherwise be uninsured. However, the "escape" provision was clearly aimed at the situation where a buyer had in fact taken out its own insurance for the same risks. The existence of the NFU policy triggered this qualification and there was accordingly no "other insurance" within the scope of the rateable proportion provision in the NFU policy.
The decision does not create new law but reiterates the principles relating to double insurance. It also confirms that 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.
Parties should consider more carefully the terms of the contract as regards the insurance of the property between exchange and completion, as double insurance may not provide the cover anticipated. Prospective purchasers may also find that their insurers are reluctant to provide cover without sight of the seller's insurance policy, which may impact on the deal timetable.