Miscellaneous topics Flashcards

Question

Double insurance - Bousefield v Barnes

Answer 1

The first reported case of this kind was Bousfield v Barnes. A vessel was valued in one policy at £8,000, and insured for £6,000; in another policy she was valued at £6,000 and insured for £600. A total loss took place, and the insurers on the first policy paid £6,000, being the whole sum insured. The owners then brought an action on the second policy, and proved the real value of the vessel to have exceeded £8,000. Lord Ellenborough, in answer to a claim by the insurers to treat the £6,000 already received under the first policy as salvage, held that the real value being over £8,000, the plaintiff had therefore an interest to which he might still apply the policy on which the action was brought.

Answer 2

Subsequently, a similar point arose in Bruce v Jones. A ship-owner had effected four policies on the same ship: the first was for £725 on a valuation of £3,000; the second was for £500 on a valuation of £3,000; the third was for £3,450 on a valuation of £5,000; and the fourth was for £2,400 on a valuation of £3,200. A total loss took place, and the assured received £3,126 under the first three policies. He then sued on the fourth, and the question was how much was recoverable thereon. Willes J directed the jury that insurance was a contract of indemnity, and that for the purposes of the action £3,200 must be taken to be the real value of the ship—that the sum received on the other policies, whatever were the valuations therein, must therefore be deducted from such value, and that the plaintiff was only entitled to recover the difference. The jury having accordingly found a verdict for £74, the plaintiff obtained a rule calling on the defendant to show cause why there should not be a new trial on the ground of misdirection as to the measure of damages. Amongst other contentions put forward on behalf of the plaintiffs, it was urged that the payments made under the other policies must be taken into consideration, if at all, not as payments of so much cash, but merely as payments in respect of proportionate parts of the total loss sustained; so that, for instance, a sum of £500 which had been paid by the underwriters on the first policy, the valuation wherein was £3,000, should be regarded not as a payment of £500 cash, but as a payment of one-sixth of a total loss, leaving five-sixths to which the other insurances might be applied. 28 It was further pointed out that the contention of the insurers would lead to this surprising result—that the whole sum recoverable would be less or greater, according as recovery were had in the first instance under policies of the greater or lesser valuation. The court 29 decided nevertheless that the underwriters were entitled to treat the whole sum received by the assured under the other three policies as salvage, and that the total sum recoverable was the difference between such sum and the agreed value, namely, £74. 30 Bousfield v Barnes was referred to in argument but not in the judgment. It is, however, difficult to see any principle on which the two decisions can be reconciled. The 1906 Act codifies the law as stated in Bruce v Jones

Answer 3

(1)Where the assured is over-insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract. (2)If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers, and is entitled to the like remedies as a surety who has paid more than his proportion of the debt.

Answer 4

(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. (2)Where the assured is over-insured by double insurance— (a)The assured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may think fit, provided that he is not entitled to receive any sum in excess of the indemnity allowed by this Act; (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; (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: (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.

Answer 5

A. The maximum liability method B. The common liability method C. The independent liability method See notes

Answer 6

It was established by Chippendale v Holt 117 and later cases 118 that if the reinsured was liable for total loss only under the direct policy then the settlement of a partial loss as if it were a total loss would not be recoverable from reinsurers, notwithstanding the use of the formula “to pay as may be paid thereon”. To overcome these decisions, total loss only reinsurance policies began to provide cover not only for actual or constructive total loss, but also for compromised and/or arranged total loss (the precise wording used varied). In Street v Royal Exchange Assurance Co 119 the Court of Appeal held that there was a compromised total loss where the assured had brought a claim for total loss which was settled by underwriters on the original policy, notwithstanding that there was (by virtue of the Marine Insurance Act 1906 s.56(4)) an alternative claim for partial loss, and the settlement did not identify the basis on which the claims were settled, but merely settled all claims in the action. It was enough that there was a claim for total loss, persisted in up to the point of settlement, which was settled in common with all claims in the action. Street was applied in Bergens Dampskibs-Assurance Forening v Sun Insurance Office Ltd, 120 where, however, Rowlatt J concluded on the facts that there was never a real claim for total loss, so that a settlement concluded between the assured and original underwriters did not constitute a compromised total loss. Subsequently, in Gurney v Grimmer, 121 the Court of Appeal (following Street) decided that the words “compromised and/or arranged total loss” covered the settlement of a claim on the original policy, notwithstanding that by the terms of the settlement the total loss claim was paid in full and there was compromise only in relation to a claim made in the same action for sue and labour expenses: the effect of the settlement was that both claims were compromised or (per Lawrence LJ) there was an arranged total loss. The basis on which the claim on the original policy was settled is a question of fact in each case, and it is not open to the parties to manufacture, by their settlement, a total loss where there was neither a total loss in fact nor a genuine claim for one Arranged total loss Covers a “variety of sins”, but it usually concerns a genuine claim for CTL, which follows a fair amount of debate, with or without some (minor) element of reduction. Compromised total loss For example, where it is unknown if a damaged crankshaft needs to be replaced or can be replaced. If the crankshaft is condemned, the vessel is a CTL; if an expensive grinding operation is carried out and the crankshaft saved, the figures fall just below a CTL. Underwriters and Assured may agree to a “Compromised Total Loss”. Commerical total loss Consider the following example: An elderly vessel insured for $1m but worth only $300,000 sustains machinery damage which costs $600,000 to repair. She is not a CTL, but Owners would not spend $600,000 to regain a vessel valued at $300,000. She is therefore a commercial total loss. The question arises as to whether insurers will pay anything as a compromise settlement. The unrepaired damage claim may be negligible if her sound value is close to her scrap value. Insurers are usually reluctant to make compromise payments in such commercial total loss situations.

Answer 7

P. & I. Club rules normally make payment of the third party’s claim by the member a condition precedent to the member’s right of recovery from the Club. It was long disputed whether this type of clause could operate under the Third Parties (Rights against Insurers) Act 1930, given that if the assured has become insolvent and is unable to pay then the clause if it is so construed bars any claim under the policy and thus prevents any claim by the third party. In a joined appeal to the House of Lords, Firma C-Trade SA v Newcastle Protection and Indemnity Society (The Fanti) and Socony Mobil Oil Inc v West of England Shipowners Mutual Insurance Association (The Padre Island) (No.2), 352 in each of which third party cargo interests sought to recover under the 1930 Act from the P. & I. Clubs of insolvent shipowners, their Lordships ruled that the clause was effective. Staughton J at first instance in The Fanti 353 had decided that the clause was ineffective because the assured’s contingent right to be paid was transferred to the third party and the requirement of prepayment did not affect that right and was to be disregarded. By contrast, at first instance in The Padre Island (No.2) 354 Saville J held that there was no contractual entitlement to payment by the Club without prepayment, so that the cargo owners did not obtain any right to recover by reason of the statutory transfer. The Court of Appeal 355 preferred the views of Staughton J, but the House of Lords was unanimously in favour of Saville J’s approach and confirmed that the third party cannot by reason of the transfer under s.1(1) of the 1930 Act be in a better position than the assured. It was also held that there was no equitable principle which overrode the operation of the pay to be paid clause. The 2010 Act addresses the problem of pay to be paid clauses. The general rule in s.9(5) is that such clauses will cease to be enforceable. However, special provision is made for marine insurance by s.9(6) (marine insurance being the main context in which such clauses are found). Under this provision, pay to be paid clauses are valid and enforceable unless the claim is one for death or personal injury. Accordingly, P. & I. Clubs can continue to insist upon prepayment for cargo and other property damage claims, but not for injury claims. This provision will not affect the validity of the pay to be paid wording under the standard collision liability clause in hull policies, as this clause expressly excludes liabilities for loss of life or personal injury.