Dual Insurance – What is it, Why do you care & How does it work?

Dual Insurance arises when the same risk is covered by two (or more) independent but overlapping insurance policies. The key question to ask is "if the insured were to be paid under both policies, would [the insured] be paid twice in respect of the same damage?"1. If the answer is yes, you might have a situation of dual insurance on your hands.   

Why do you care?

Dual insurance does not affect the insured's rights. There is no prohibition on an insured obtaining multiple insurance policies which cover the same risk (whether inadvertently or intentionally). Pursuant to section 76 of the Insurance Contracts Act 1984 (ICA), the insured can choose which policy to call upon in these circumstances to cover their loss.

Dual insurance may enable an insurer to claim contribution from any other insurer which insured the same person against the same loss under another insurance policy. That is, you may be able to recover at least some of the payments made to your insured from another insurer.

Of course, it can also work the other way – another insurer may attempt to seek contribution from you. Understanding dual insurance may assist you in deciding whether you have a basis for resisting a claim made against you.  

When does Dual Insurance Arise?
  1. Do you have a Common Insured?
    Both insurers must insure the same relevant insured, either by name or as a person to whom cover extends. This can include, for example, a third party beneficiary who has a right to recover from an insurer for the loss pursuant to section 48 of the ICA.
     
  2. Do your policies cover the Same Loss?
    The common insured has suffered a loss which is covered by both policies (in whole or in part) at the time of the incident giving rise to the loss. Each insurer must be liable under their respective policies and each policy must cover the risk that has given rise to the claim.
     
  3. Was the payment made in accordance with your policy?
    You cannot seek contribution for ex gratia payments. You will only be entitled to seek contribution where you have indemnified the common insured in accordance with your insurance policy.
     
  4. Does section 45 ICA apply?
    "Other insurance" clauses (which essentially require an insured to call on other available insurance policies first) are void only if the insured is a contracting party to both contracts of insurance. If there is an enforceable "other insurance" clause, this may impact on your ability to seek contribution.
What do you need to establish?

To enliven your right to seek contribution from another insurer, you must establish that:

  1. You were liable to indemnify the insured under your own policy.
     
  2. You paid out sums in respect of that liability.
     
  3. The sums paid were reasonable.
     
  4. The co-insured is also liable under its policy to indemnify the insured.

For a quick reminder of Dual Insurance principles, see our handy printout

KEY IMPLICATIONS FOR INSURERS
  1. Insurers are able to seek contribution from other insurers in certain circumstances. As a result, you should ask your insureds to disclose what other insurance policies they have. Equipped with this information, consider whether there is any scope to seek contribution from another insurer.
     
  2. Insurers are able to recoup payments made without impacting their relationship with their insured. The insured will have already been indemnified before the insurer seeks contribution from any co-insurer.
     
  3. If a co-insurer attempts to seek contribution from you – remember the dual insurance principles. If the co-insurer does not satisfy all the requirements, there may be scope for you to resist their claim for contribution.

1Australian Eagle Insurance CO Ltd v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59

Louise Cantrill

I provide solutions that matter to client success through collaboration, innovation and excellence.

Louise Cantrill Partner

Louise has specialised in liability litigation and insurance advice since 1996, combining technical excellence with a commercial approach to deliver client focused outcomes. She is highly regarded by her insurer and insured clients (including government agencies, corporates and self-insureds) across a wide range of claims litigation and technical insurance advice.

Louise is highly regarded for both her insurance advisory work with insurer, government and corporate clients, and her claims expertise in the areas of professional negligence (including medical, financial services and construction) and directors & officers.

Louise manages civil matters and appears at Coronials across a wide range of professional negligence and directors and officers claims, including catastrophic injury, multi-party, complex commercial, and high profile claims.

Louise's advisory practice focuses on policy interpretation and multi-contract transactional advice. She advises on policy interpretation and coverage, including multilayer programmes and re-insurance issues. Her insurer clients seek her out for policy wording reviews.

Louise's clients include NSW Ministry of Health, Transport for NSW, W.R. Berkley Insurance Australia, Allied World Assurance Company, Macquarie Bank, Insurance Council of Australia, Sydney Water Corporation, Westfield, PPB Advisory and McGrathNicol.

One of her career highlights was advising Transport for NSW on insurance issues arising from the 'fixing the trains' project, which was one of the most significant  corporate and operational restructures in Australia. This included transactional advice and drafting as well as policy analysis and negotiation.

">
see my profile