What is dual insurance?

Dual or double insurance occurs when two (or more) insurance policies cover the same interest, subject matter, risk and loss. It is often discussed in terms of ‘co-ordinate liabilities’ between insurers with a shared obligation to indemnify the same loss.

Dual insurance prevents one party from being unjustly enriched at the expense of another party liable for the same loss. Dual insurance arises where payment by one insurer would discharge the obligation of another such that the second insurer is no longer required to meet its promise to the insured.

Section 76 of the Insurance Contracts Act 1984 (Cth) (ICA) provides the statutory basis for dual insurance, to be read in conjunction with section 45 of the ICA.

Example

The leading Australian authority on dual insurance is Albion Insurance¹. In that case, an employee was injured in a car accident while at work as a result of the negligent driving of another employee. The employer had a workers’ compensation policy with Albion and a CTP policy for the vehicle.

The employee sued the employer. Albion paid the claim under the workers’ compensation policy and sought contribution from the CTP insurer based on dual insurance. The CTP insurer resisted the claim on the basis the subject matter of the policies was so fundamentally different that dual insurance did not arise.

Essentially, the Albion policy covered the employer against the risk of injury to the employee in the course of employment, irrespective of negligence, whereas the CTP policy covered anyone becoming entitled to damages arising from the negligent use of the motor vehicle.

In finding that dual insurance did arise, the High Court held:

• the insurances must insure the same risk, but they do not need to be identical;

• each insurer must be liable, although they do not need to be liable for the whole of the loss;

• the insured cannot recover more than its loss — this enshrines the indemnity principle as a fundamental

  tenet of dual insurance; and

• the insured may claim from either insurer — the insurer cannot control which policy is claimed against (enshrined in section 76 of the ICA).

More recently, the Victorian Court of Appeal² summarised the general principles applicable to dual insurance as follows:

• both insurers must insure a common insured (it does not matter that the policies may also insure others and that not all the insureds are covered by both policies);

• both policies must cover the same risk or same liability (it does not matter that one or both policies may also cover other risks that are not the subject of the claim);

• the same insured must suffer a loss or incur a liability that is covered by both policies (either in whole or in part);

• the first insurer must have indemnified the insured for its loss or liability under the terms of its policy;

• the second insurer must have not indemnified the insured for its loss or liability under the terms of its

  policy;

• whether the loss is covered by both policies is to be determined at the time of the insured event, so subsequent events (e.g. failure to claim under the second policy; cancellation of the second policy etc) will not affect the first insurer’s right to contribution; and

• where the loss falls within an exclusion clause of the second policy, there is no entitlement to contribution.

We summarise the key issues arising from those judgments below³.

Common insured

The person suffering the loss needs only to be “an insured” under both policies. It is not necessary that the person is the contracting party or policyholder in both policies.

It is important to examine the full scope of the ‘insured’ definition to identify whether it includes (for example) an insured’s contractors, consultants or agents.

Same risk

It is not necessary for the policies to be of the same nature or that each policy insures all the same risks, provided the risk that has given rise to the liability is covered under both policies.

One interesting example where the courts have considered co-ordinate liabilities (albeit in the context of circumstances other than dual insurance) was in Speno Rail Maintenance v Hamersley. Speno took out liability insurance in its own name and in the name of Hamersley as part of its contractual obligations. The policy did not cover Speno in relation to the contractual indemnity it gave to Hamersley⁴.

One of Speno’s workers was injured as a result of Hamersley’s negligence. The worker sued Hamersley, who, in turn, sought indemnity from Speno and the insurer under the policy. The insurer claimed contribution from Speno because both were liable to indemnify Hamersley. The Court rejected the claim on the basis that the insurer’s and Speno’s liabilities were not co-ordinate (i.e. the same). Critical to that conclusion was the fact the insurer’s liability arose under an insurance contract and Speno’s did not.

Both insurers must be liable

Both insurers must be liable to the insured under their respective policies. Where the first insurer makes an ex gratia payment under its policy, it cannot claim contribution from the second insurer if the first insurer was not liable to make the payment under its own policy⁵.

Making and defending claims for contribution

The approach to a dual insurance claim is no different from making or dealing with any other claim against a policy and requires detailed consideration of the terms of both policies.

Once it is determined that dual insurance applies, the first insurer may pursue a claim against the second insurer. A claim for contribution based on dual insurance is a claim between the insurers directly. It is not a subrogated claim in the name of the insured.

Where dual insurance applies, an insurer is entitled to contribution for the payments made by way of indemnity and for expenses it reasonably incurred investigating and resolving an insured’s claim (at least to the extent that the other insurer has benefited from those costs).

Often each policy will provide for different limits and sub-limits, which is important if indemnity payments made under the first policy are greater than the limit/sublimit of the other policy from which contribution is sought.

1. (1969) 121 CLR 342.
2. QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326.
3. More detailed commentary can be found in chapter 13 of Carter Newell’s Professional Liability Guide.
4. (2000) 23 WAR 291.
5. However, the first insurer may exercise rights of subrogation against the second insurer on the basis the payment by the first insurer effectively discharged the second insurer from its burden to indemnify the insured.